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ON 



THE PRINCIPLES 



POLITICAL ECONOMY, 



*l\ \^ A 



BY DAVID RICARDO, ESQUIRE, 



FIRST AMERICAN EDITION. 



GEORGETOWN, D. C. 
PUBLISHED BY JOSEPH MILLIGAN. 

JACOB GIDEON, JUNIOR, PRINTER, WASHINGTON OITY^ 
1819. 









GiFT 

-£STAt-E OF 

WILL! AM C. RIVES 

APRIL, 1940 



„^ 



PREFACE. 



The produce of the eartli— all that is 
derived from its surface by the united appli- 
cation of labour, machinery, and capital, is 
divid3d among three classes of the commu- 
nity ; namely, the proprietor of the land, the 
owner of the stock or capital necessary for 
its cultiration, and the labourers by whose 
industry it is cultivated. 

But in different stages of society, the pro- 
portions of the whole produce of the earth 
which will be allotted to each of these classes^ 
under the names of rent, profit, and wages, 
will be essentially different ; depending main- 
ly on the actual fertility of the soil, on the 
accumulation of capital and population, and 
on the skill, ingenuity, and instruments em- 
ployed in agriculture. 

To determine the laws which regulate this 
distribution, is the principal problem in Po- 
litical Economy: much as the science has 
l)een improved by the writings of Turgot, 



Stuart, Smith, Say, Sismondi, and others, 
they afford yery little satisfactory information 
respecting the natural com'se of rent, profit, 
and wages. 

In 1815, Mr. Malthus, in his " Inquiry into 
the nature and progress of rent," and a Fellow 
of University College, Oxford, in his " Essay 
on the application of capital to land," pre- 
sented to the world, nearly at the same mo- 
ment, the true doctrine of rent ; without a 
knowledge of whicli it is impossible to under- 
stand the effect of the progress of wealth on 
profits and wages, or to trace satisfactorily the 
influence of taxation on different classes of the 
community, particularly when the commodities 
taxed are the productions immediately derived 
from the surface of the earth. Adam Smith, 
and the other able writers to whom I have al- 
luded, not having viewed correctly the princi- 
ples of rent, have, it appears to me, overlooked 
many important truths, which can only be 
discovered after the subject of rent is tho- 
roughly understood. 

To supply this deficiency, abilities are re- 
quired of a far superior cast to any possessed 
by the writer of the following pages ; yet af- 
ter having given to this subject his best con- 
sideration — after the aid wliich he has deriv- 



ed from the works of the above-mentioned 
eminent winters-— and after the valuable expe- 
rience which a few late years, abounding in 
facts, have yielded to the present generation 
it will not, he trusts, be deemed presumptu- 
ous in him to state his opinions on the laws 
of profits and wages, and on the operation of 
taxes. If the principles which he deems cor- 
rect should be found to be so, it will be for 
others more able than himself to trace them 
to all their important consequences. 

The writer, in combating received opinions, 
has found it necessary to advert more par- 
ticularly to those passages in the writings of 
Adam Smith from which he sees reason to 
differ; but he hopes it will not on that ac- 
count be suspected that he does not, in com- 
mon with all those who acknowledge the im- 
portance of the science of Political Economy, 
participate in the admiration which the pro- 
found work of this celebrated author so justly 
excites. 

The same remark may be applied to the 
excellent works of M. Say, who not only was 
the first, or among the first, of continental 
writers, who justly appreciated and applied 
the principles of Smith, and who has done 
piore than all other continental writers taken 



togeher, to recommend tlie principles of that 
enlightened and beneficial system to the na^ 
tions of Europe ; but who has succeeded in 
placing the science in a more logical, and 
more instructive order ; and has enriched it 
by several discussions, original, accurate, and 
profound.* The respect, however, which the 
author entertains, for the writings of this 
gentleman, has not prevented him from com- 
menting with that freedom which he thinks 
the interest of science require, on such pas- 
sages of the " Economic Politique," as ap- 
peai'ed at variance with his own ideas. 

* Chap. XV. parti. "Des Debouches," contains in particular 
some very important principles, which I believe were first ex- 
plained by this distinguished v/riter. 



€OXTEXT^. 



CHAP. 


, 


Page.. 


v^I. 


On Value . . . . 


a 


vii. 


On Rent , . . 


35 


III. 


On the Rent of Mines' . 


. 57 


IV. 


On JSTatuval and Market Price 


61 


V V. 


On Wages . . . . 


. 67 


V*. 


On Profits 


85 

■ • ----^ 


VI. 


On Foreign Trade . . 


.1^ 


VII. 


On Taxes . 


135 


vm. 


Taxes on Raw Produce . 


141 


VIII*. 


Taxes on Rent . . 


161 


IX. 


Tithes 


165 


X. 


Land Tax .... 


171 


XI. 


Taxes on Gold . . , 


183 


XII. 


Taxes on Houses 


195 


XIII. 


Taxes on Profits 


SOI 


XIV. 


Taxes on Wages 


313 


XV. 


Taxes on other Commodities 






than Raw Produce 


S47 


XVI. 


Poor Rates 


365 


XVII. 


On Sudden Changes in the 






Channels of Trade 


373 


xvnii 


Value and Riches, their Dis- 






tinctive Properties . 


383 


XIX. 


Effects of Accumulation on 






Profits and Interest . 


399 


XX. 


Bounties on Exportation, 
and prohibitions of Impor- 






tation .... 


313 



viii 


CONTENTS. 


I 


CHAP. 




Pa^e*. 


XXI. 


On Bounties on Production 


339 


XXII. 


Doctrine of Adam Smith con- 






cerning the Rent of Land 


317 


XXIII. 


' On Colonial Trade 


361 


XXIV. 


On Gross and JS*et Revenue . 


373 


XXY. 


On Currency and Banks 


379 


XXVI. 


On the comiiarative value of 
Gold, Corn, and Labour, in 






Rich and in Poor Countries 


401 


XXVII. 


Taxes paid by the Producer , 


409 


XXVIII. 


On the Influence of Demand 






and supply on Prices . • 


4tl3 


XXIX. 


'Mr. Malthus^s Opinions on 






Rent . . . • 


419 



CHAPTER t 

On Value. 

It lias been observed by Adani„BBU^7 that "the 
word VaUieJlas_two .difl^rexit me and some- 

times expresse s the uti lity- o£j^cuna,pajticiLlarobiect^ 
and sometimes the power of purchasing other goods 
which the possession of that object conveys. The 
one^niaj_h:g_call£d.raZite in use ; the other, valueJn 
exchange. The jthings/^ he continues, " wJiicli 
have theL^fiMfisjLYalua_ia.Jise^_l^^^ 
or^no Jk^aluein excliange; and, on the contrary^ 
those jffiJikhJhaxaJihe-greate^t j^aJh^^ 
have little or no value in use." W^i M' and air are 
abun dantly useful ; they are indeed indispensable 
to existence, yet, under ordinary circumstances, no- 
thing can be obtained in exchange for them. Goy, 
on the c ontrary, th ough of little use compared with 
air oiLJitaJ^ry^wiU-^x^hangeforL^ -great j5y^^ 
other goods. 

Utility th en is not the measure of exchangeable 
value, although it is absolutely essential to it. If 
a c(>mmo3iT^_were in no way useful, — ^in other 
words, if it could in no way contribute to our grati= 
fication, — itwould^ destitute of exchangeable va» 
lijLS^owever scarce it might be, or whatever quan- 
tity of labour might be necessary to procure it 



Poii sessins uti lity, commodities derive their ex- 
changeable value from two sources : from their scar- 
city, and from th^ quantity of labour required„to 
obtain them. 

There are some commodities, thejriaJjiBjaf which 
is determiueA by ^leir^scarcity alone. No labour 
can increase the quantity of such goods, and there- 
fore their value cannot be lov/ered by an increased 
supply. Some rare statues and pictures, scarce 
books and coins, wines of a peculiar quality, which 
can be made only from grapes grown on a particu- 
lar soil, of which there is a very limited quantity, 
are all of this description. Their value is wholly 
independent of the quantity of labour originally ne- 
cessary to produce them, and varies with the va- 
rying wealth and inclinations of those who are desi- 
rous to possess them. 

These commodities, however, form a very sm^U 
part of the^ffl^ss of commoditiea daily exchanged ia 
the market. By far the greatest part of those goods 
which are the objects of desire, are^ procured by la- 
bour 5 and they may be multiplied, not in one coun- 
try alone, but in many, almost without any assigna- 
ble limit, if we are disposed to bestow the labour 
necessary to obtain them. 

In speaking then of commodities, of their ex- 
changeable value, and of the laws which regulate 
their relative prices, we mean always such commo- 
dities only, as can be increased in quantity by the 
exertion of human industry, and on the production 
of which competition operates without restraint. 

In the early stages of society, the exchangeable 
value of these commodities, or the rule which de- 



3 

termines how much of one shall be given in ex- 
change for another, depends solely on the compa- 
rative quantity of labour expended on each. 

^•^The r eal p rice of every thing/^ says Adam 
Smith, " what_eyjBr2;Jhing^ i^al^ly costs^ the man 
who-wants-io-aequire it, is the toiL^andJimibLe of 
acqjiirin§-it. What every thing is really worth to 
the man who has acquired it, and who wants to dis- 
pose of it, or exchange it for something else, is the 
toil and trouble which it can save to himself, and 
which it can impose upon other people." " La- 
bour was the first price — the original purchase- 
money that was paid for all things.'' Again, " in 
that early and rude state of society, which precedes 
both the accumulation of stock and the appropria- 
tion of land, the proportimiJietiveen the quantities 
of labqurjaecessary for acquiring different objects, 
«eems to be the only circunistance which can afford 
any rule for exchanging them for one another. If 
among a nation of hunters, for example, it usually 
cost twice the labour to kill a beaver which it does 
to kill a deer, one beaver should naturally ex- 
change for, or be worth two deer. It is natural-tbat 
what is usiiallyi-ih€ produce of two days', or two 
hours' labour, should_be_ffiiuitlL double of what is 
usually thfi^^roduce of one_ day's, or one hour's la- 
bour."* 

That this isjf eally the foun datJQJLJCrf the .exghange- 
able valufiLjJif alUhings, excepting those which can- 
not be increased by human industry, is j^daciime 
of the ^utrnflsLimportance in political econflmy ; for 

* Book i. chap. 5. 



from no source do so many errors, and so much dif- 
ference of opinion in that science proceed, as from 
the vague ideas, which are attached to the word 
value. 

If thejQiantitj of lahour realized in commodities, 
regulate their exchangeable value, every increase of 
the quantity of labour .must augment the value of 
that xonunodi^^n which it is exercised, as every 
diminutiQajmust4oM er it. 

Adam Smith, who so accurately defined the ori- 
ginal source of exchangeable value, and who was 
bound in consistency to maintain, that a ll thing s 
became more or less valuable in proportion as more 
orl^sS-J^jpur was bestowed on their production, has 
himself erected another standard measure of value, 
and spe aks of things being; mo re or less valuable, 
in propfirtiQn_as, they will exchange for more or less 
of thisjstandaid measure. Sometimes he speaks of 
corn, at other times of labour, as a standard mea- 
sure ; not the . qu antit j" of iabou r bestowed on the 
production of^any^obj^ectjL but th^ which it 

can command in the market : as ifJJi£S£-.i£ere_two 
equivalen j expressions, and as if because. a man!s la- 
bour bad become doubly efficient^ and he could there- 
fore produce twice tlve quantity of a commodity, l»e 
would necessarily receive twice the former quantity 
in exchange for it. 

If t]|i s indeed w ere tme, if the reward of the la- 
bourer^ were always in proportion to what he pro- 
duccd^ie quantity of labour bestowed on a com- 
v_^odity, and the quantity of labour which that com- 
modity yiipuld purchase, would be equal, and either 
might accurately measure the i-ariations of othci' 



things^; bui_ thfi^-are not equal ; tlie fijGg^is under 
many circumstances an invariable standard, indicat- 
ing correctly -thajkrarlations of other things : the Jiat- 
ter is subject to as many fluctuations as the com- 
moditie^_^omLpared with it. Adam Smith, after 
most ably shewing the insufficiency of a variable 
medium, such as gold and silver, for the purpose of 
determining the varying value of other things, has 
himself by fixing on corn or labour, chosen a me- 
dium no less variable. 

Gold^and silver are no doubt subj ect to fluctuar 
tions, fromlhe discovery of new and more abundant 
min£s ; but such discoveries are rare, and their ef- 
fects, though powerful, are limited to periods of 
comparatively short duration. They are subject 
also to fluctuadjomy^ from improvements in the skill 
and machinery with which the mines may be work- 
ed ; as in consequence of such improvements, a 
greater quantity may be obtained with the same la- 
bour. They are further subject to fluctuation^ from 
the decreasing_ produce of the mines, after they 
have yielded a supply to the world, for a succes- 
sion of ages. But fromj^hich-of-these-sourees-of 
flucluatioiLis. corn exempted ? Does not that also 
vary on one hand, from improvements Tn'agncul- 
ture, from improved machinery and implements 
used in husbandry, as well as from the discovery 
of new tracts of fertile land, which in other coun- 
tries may be taken into cultivation, and which will 
affect the value of corn in every market where im- 
portation is free ? Is it not on the other hand sub- 
ject to be enhanced in value from prohibitions of 
importation, from increasing population and wealthy 



6 

and the greater difficulty of obtaining the increased 
supplies, on account of the additional quantity of 
labour which the cultivation of inferior lands re- 
quires ? Is not the value of labour equally varia- 
bifi^Jbeing^ not only affected, as all other things are, 
by the proportion between the supply and demand, 
which uniformly varies with every change in the 
condition of the community, but also by the vary- 
ing price of food and other necessaries, on which 
the wages of labour are expended? 

In the same country double the quantity of la- 
bour may be required to produce a given quantity 
of food and necessaries at one time, that may be ne- 
cessary at another, and a distant time ; yet the l?i- 
bourer's reward may possibly be very little dimi- 
nished. If the labourer's wages at the former pe- 
riod, were a certain quantity of food and necessa- 
ries, he probably could not have subsisted if that 
quantity had been reduced. Food and necessaries 
in this case will have risen 100 per cent, if estimat- 
ed by the quantity of labour necessary to their pro- 
duction, while they will scarcely have increased in 
value, if measured by the quantity of labour for 
which they will exchange. 

The same remark may be made respecting two or 
more countries. In America and Poland, a year's 
labour will produce much more corn than in En- 
gland. Now, supposing all other necessaries to 
be equally cheap in those three countries, woijJLd it 
not be a great mistake to conclude, that the quanti- 
ty of corn awarded to the labourer, would in each 
country be in proportion to the facility of produc- 
tion ? 



c -If the shoes and clothing of the labourer, could, 
hy improvements in machinery, be produced by one 
fourth of the labour now necessary to their produc-, 
tion, they would probably fall 7^ per cent. ; but so 
far is it from being true, that the labourer would 
thereby be enabled permanently to consume four 
coats, or four pair of shoes, instead of one, that his 
wages would in no long time be adjusted by the ef- 
fects of competition, and the stimulus to population, 
to the new value of the necessaries on which they 
were expended. If these improvements extended 
to all the objects of the labourer's consumption, we 
should j&nd him probably at the end of a very few 
years, in possession of only a small, if any, addi- 
tion to his enjoyments, although the exchangeable 
value of those commodites,. compared with any 
other commodity, in the manufacture of which no 
such improvement were made, had sustained a very 
considerable reduction ; and though they were the 
produce of a very considerably diminished quantity 
of labour. 

It can not^ t hen bg. .correct, to say with Adam 
Smith, " that asjabour may sometimes purchase & 
greater,_aud sometimes a smaller quantity of goods, 
it is their value which varies, not that of the labour 
which4)urchases them;" and therefore, "that_lar 
hour alo:ne^never varyinsi '^^^ ^^^ own value, is aloije 
the ultimate and real standard by which the value 
of all commodities can at all times and places be 
estimated and compared ;'- — ^but it is correct to say, 
as Adam Smith had previously said, "that the 
proportion between the quantities of labour neces- 
ary for acquiring different objects, seems to be the 



only circtimstaiicc wliich can afford auy rule for ex- 
changing them for one another ;'' or in other words, 
that it is the comparative quantity of commodities 
which labour will produce, that determines their 
present or past relative value, and not the compara- 
tive quantities of commodities, which are given to 
the labourer in exchange for his labour. 

If any one commodity could be found, which now 
and at all times required precisely the same quan- 
tity of labour to produce it, that commodity would 
be of an unvarying value, and would be eminently 
useful as a standard by which the variations of 
other things might be measured. Of such a com- 
modity we have no knowledge, and consequently 
are unable to fix on any standard of value. It is, 
however, of considerable use towards attaining a 
correct theory, to ascertain what the essential quali- 
ties of a standard are, that we may know the Causes 
of the variation in the relative value of commodi- 
ties, and that we may be enabled to calculate the. 
degree in which they are likely to operate. 



In spejiking_JiQ\V£LYero£ labour, as being tlie 
foundation of all value, and the rc]ativcx[uantity-of 
Iabour„as determiaing the relative value of,, com- 
raqjdities, I must not be supposed to be inatteii- 
tive to .I he d iifere'nt ^ q ualitics of labour, and 
the difficulty of comparing an hours, or a day-s 
labour, in one employment, with the same duration 
of labour in another. The estimation in which dif- 
ferent qualities of labour are held, comes soon to be 



adjusted in the market with sufficient precision fop 
all practical purposes, and depends much on the 
comparative skill of the labourer, and intensity of 
the labour performed. The scale, when once form- 
ed, is liable to little variation. If a jia^'s labour 
of a workingjeweller be more valuable than a day's 
labouiL of a common la-bpum*, it has loDg ago been 
adjusted, and placed in its proper position in the 
scale orvalue.* 

In comparing therefore the value of the same 
commodity, at different periods of time, the < onsi- 
deration of the comparative skill and intensity of la- 
bour, required for that particular commodity, needs 
scarcely to be attended to, as it operates equally at 
both periods. One description of labour at one 

* ," But though labour be the real measure of the exchange- 
able value of all commodities, it is not that by which Mieir 
value is commonly estimated. It is often diflBcult to ascer- 
tain the proportion between two differentquantities of labour. 
The fime spent in two different sorts of work will not al- 
ways alone determine this proportion. The different degrees 
of hardship endured, and of ingenuity exercised, must like- 
wise be taken into account. There maybe more labour in 
an hours' hard work, than in two hours' easy business ; or, 
in an hour's application to a trade, which it cosfs ten years' 
labour to learn, than in a month's industry at an ordinary 
and obvious employment. But it is not easy to find any 
accurate measure, either of hardship or ingenuity. In ex- 
changing, indeed, the different productions of different sorts 
of labour for one another, some allowance is commonly 
made for both. It is adjusted, however, not by any accu- 
rate measure, but by the higgling and bargaining of the mar-"* 
ket, according to that sort of rough equality which, though 
not exact, is sufficient for carrying on the business of com-' 
monlifeJ^'— Wealth of jsrations. Book i, chap. 10. 



Id 

time is compared with the same description of la- 
bour at another; if a tenth, a fifth, or a fourth, has 
been added or taken away, an ej0fect proportioned 
to the cause will be produced oq the relative value 
of the commodity. 

If a piecejtf^cloth be jiaw. of the value of two pie- 
ces of liiien^^^iMl if^ ill teii y^ears hence, the ordina- 
ry value ofa ^piece of cl oth should be four pieces of 
lineiiTwe ma y safely concl ude that either more la- 
bour is uequiredjo^make the cloth, or less to make 
the linen, or that both causes have operated. 

X^s the inquiry to which I wish to di'aw the read- 
er's attention, relates to the effect of the variations 
in tie relative value of commodities, and not in their 
absolute value, it will be of little importance to ex- 
amine into the comparative degree of estimation in 
which the different kinds of human labour are held. 
We may fairly conclude, that whatever inequality 
there misjht originally have been in them, Avhatever 
the in2;eHui<^y, skill, or time necessary for the ac- 
quirement of one species of manual dexterity more 
than another, it continues nearly the same from one 
sreneration to another; or at least, that the variation 
is very inconsiderable from year to year, and there- 
fore, can have little effect for short periods on thft 
relative value of commodities. 

" The nronortion between the different rates both 
of wa^es and nrotit in the different employments of 
labour and stock, seems not to be much affected, as 
•has already been observed, by the riches or pover- 
ty, the advancina;, stationarv, or declinins; state of 
the society. Such revolutions in the public wel- 
fare, though they affect the general rates both of 



L»9i: 



11 

WageiS and profit, must in the end affect them equal- 
ly in all different employments. The proportion 
between them therefore must remain the same, and 
cannot well be altered, at least for any considerable 
time by any such revoUitions.*'* 

It will be seen by the extract which T have made 
in page 4, from the '* Wealth of Nations," that 
thou^ Adam Smith full y rec og;nized the principle, 
that the proportion laetween the quantities of labour 
necessai!y_for acquiring different objects, is the only 
clrcujn^tance which can afford any rule for our ex- 
changing them for one another, yet he limits itsap- , 
plication io '^ that early and rude state of society, (\ 
which precedes both the_accumulation of stock and 
the appropriation of land ;" as if, wfien profits and 
rent were to be paid, they would have some influ- 
ence on the relative value of commodities, indepen- 
dent of the mere quantity of labour that was neces* 
sary to their production. 

Adam Smith, however, has^no where analyzed 
the effects _of,Jhe^ccumulatipn of capital, and the 
approprlatio^n_of land, on relative value. Tt is of 
importance, therefore, to determine how far the ef- 
fects which are avowedly produced on the ex- 
changeable value of commodities, by the compara- 
tive quantity of labour bestowed on their produc- 
tion, are modified or altered by the accumulation of 
capital and the payment of rent. 

First, as to the^jL^umulatioc of capital. Even 
in that early state to which Adam Smith refers, 
somejcajpital, though possibly^made and accumula- 

* Wealth of Nations, Book i. chap, 10, 



IS 

ted by the l^mterJilmself would ^>e wece^sftry to 
enable liim to ki ll his !^an ie Without some wea- 
pon, neither the beaver nor the deer could be de- 
stroyed, and therefore the value of these animals 
would be regulated, not solely by the time anfl la- 
bour necessary to their destruction, but also by the 
time and labour necessary for providing the huji- 
ter's capital, the weapon, by the aid of which their 
destrn tion was effected. 

Suopose the wea pon ne cessgiry to kill the bea- 
ver were constructed witli mjidunQre labour than 
tbat necessary to kill the^deer, on account of the 
greater di(!iculty of approaching near to the former 
animal, and the consequent necessity of its being 
more true to its. mark; one beaver would naturally 
be of more value than two deer, and precisely for 
this reason, that moxaJabour would on the whole 
t)e nece!^sary_toJts_iLesti'uction. 

All the implements necessary to kill the beaver 
and deer might belong to one class of men, and 
the labo'ir employed in their destruction might be 
furnished by another class: still, their comparative 
prices would be in proportion to the actual labour 
bestowed, both on the formation of the capital, and 
on the destruction of the animals. Under different 
circumstances of plenty or scarcity of capital, as 
compared with labour, under different circumstan- 
ces of plenty or scarcity of the food and necessaries 
essential to the support of men, those who furnish- 
ed an equal value of capital for either one employ- 
ment or for the other, m^ght have a half, a fourth, or 
an eighth of the produce obtainejil, the remainder 
being paid as wages to those who furnished the la - 



13 

hour ; yet this division could not affect the relative 
value of these commodities, since whether the pro- 
jBts of capital were greater, or less, whether they 
were 50, SO, or 10 per cent, or whether the wages 
of labour were high or low, they would operate 
equally on both employments. 

If we suppose the occupations of the society ex- 
tended, that some provide canoes and tackle neces- 
sary for fishing, others the seed and rude machin- 
ery first used in agriculture, still the same princi- 
ple would hold true, that the exchangeable value 
of the commodities produced would be in propor- 
tion to the labour bestowed on their production; 
not on their immediate production only, but on all 
those implements or machines required to give ef- 
fect to the particular labour to which they were 
applied. 

If we look to a state of society in which greater 
improvements Iiave been madeTahd in which arts 
and commerce flourish, we shall still find that com- 
modities vary in value conformably with this prin- 
ciple: in estimating the exchangeable value of 
stockings, for example, we shall find that their 
value, comparatively with other things, depends 
on the total quantity of labour necessary to manu- 
facture them, and bring them to market First, 
there is the labour necessary to cultivate the land 
on which the raw cotton is grown; secondly, th6 
labour of conveying the cotton to the country where 
the stockings are to be manufactured, which in- 
cludes a portion of the labour bestowed in building 
the ship in which it is conveyed, and which is 
charged in the freight of the goods ; thirdly, the 



14 

labour of the spinner and weaver; fourthly, a por- 
tion of the labour of the engineer, smith, and car- 
penter, who erected the buildings and machinery, 
by the help of which they are made ; fifthly, t.lie 
labour of the retail dealer, and of many others, 
whom it is unnecessary further to particularize. 
The aggregate sutn of these various kinds of la- 
bour, determines the quantity of other things for 
which these stockings will exchange, while the 
same consideration of the various quantities of la- 
bour which have been bestowed on those other 
things, will equally govern the portion of them 
which will be given for the stockings. 

To convince ourselves that this is the real foun- 
dation of exchangeable value, let us suppose any 
improvement to be made in the means of abridg- 
ing labour in any one of the various processes 
through which the raw cotton must pass, before 
the manufactured stockings come to the market, to 
be exchanged for other thin2;s; and observe the 
effects which will follow. If fewer men were re- 
quired to cultivate the raw cotton, or if fewer sai- 
lors were employed in navigating, or shipwrights 
in constructiug the ship, in which it was conveyed 
to us; if fewer hands were employed in raising 
the buildings and machinery, or if these when 
raised, were rendered more efficient, the stockings 
would inevitably fall in value, and consequently 
command less of other thinsjs. They would fall, 
because a less quantity of labour was necessary to 
their production, and would therefore exchange 
for a smaller quantity of those things in which n* 
such abrids:ment of labour had been made. 



15 



Economj^ in t he use o f labour neyer fails to re- 
duce the relative value of a commodity, whether the 
savjji^ be in the labour necessary to the manufac- 
iuKe~.jQl„the^ coounodity itself, or in that necessary 
to tjie formation of the capital, by the aid of which 
, it ia^Lodu^^ed. In either case the price^of stock- 
ings would^allj^ whether there were fewer men em- 
ployed asJlkachers, spinners, and weavers, per- 
sons immediately^necessary to their manufacture; 
or as sailors, carriers, engineers, and smiths, per- 
sons more indirectly concerned. In the one case, 
the whole saving of labour would fall on the 
stockings, because that portion of labour was whol- 
ly confined to the stockings ; in the other, a portion 
only would fall on the stockings, the remainder be- 
ing applied to all those other commodities, to the 
production of which the buildings, machinery, and 
carriage, were subservient. 

In every..society the capital which is employed in 
productionjL is necessarily of limited durability. 
The food and clothing consumed by the labourer, 
the buildings in which he works, the implements 
with which his labour is assisted, are all of a pe- 
rishable nature. There is however a vast difter- 
ence in the time for which these different capitals 
"will endure; a steam-engine will last longer than 
a ship, a ship than the clothing of the labourer, 
and the clothing of the labourer longer than the 
food which he consumes. 

According as capital is rapidly perishable, and 
requiresJcTTfe ^quently reproduced, or is of slow 
©onsum|>tion, it is classed under the heads of cir- 
eulating, or of fixed capital. A brewer, whose 



(1 



46 

buildingjs and machinery are valuable and durable, 
is said to employ a large portion of fixed capital : 
on the contrary, a shoe-maker, whose capital is 
chiefly employed in the payment of wages, which 
are expended on food and clothing, commodities 
more perishable than buildings and machinery, is 
said to employ a large proportion of his capital as 
circulating capital. 

Two trade*%&n may employ the %ame amount 
of capital; but it maj'^ be very differently divided 
with r^spect^to the. portion which is fixed, and 
that which is circulating. 

Again two manufacturers may employ the same 
amount of fixed, and the same amount of circulat- 
ing capital ; but the durability of their fixed capi- 
tals may be very unequal. One may have steam- 
engines of the value of 10,000Z. the other, ships of 
Jhe same value. 

Besides the^ alteration in the rejative ya]ue of 
commodities, occasioned by more or less labour 
being required to produce them, they are also sub- 
ject to fluctuations from a rise of wages, and conr 
sequent_|all^ of profits, if the fixed capitals em- 
])loyGd be either of unequal value, or of unequal 
duration. 

Suppose that in the early stages of society, the 
bows and arrows of the hunter were of equal va- 
lue, and of equal durability, with the canoe and 
implements of the fisherman, both being the pro- 
duce of the same quantity of labour. Under such 
circumstances the value of the deer, the produce of 
the hunter's day's labour, would be exactly equal 
to the value of the fish, the produce of the fisher- 



.17 

man's day's labour. The comparative value of 
the fish and the game, would be entirely regulated 
by the quantity of labour realised in each ; what- 
ever might be the quantity of production, or how- 
ever high or low general wages or profits might be. 
If for example the canoes and implements of the 
fisherman were of the value of 100/. and were 
calculated to last for ten years, and he employed 
ten men, whose annual labour cost lOOZ. and who 
in one day obtained by their labour twenty salmon ; 
If the weapons employed by the hunter were also 
of lOOL value and calculated to last ten years, and 
if he also employed ten men, whose annual labour 
cost 100/. and who in one day procured him ten 
deei^; thea. the natural price of a deer would be 
two salmon, whether the proportion of the whole 
produce bestowed on the men who obtained it, 
were large or small. The proportion which might 
be paid for wages, is of the utmost importance in 
the question of profits ; for it must at once be seen, 
that profits would be high or lovv, exactly in pro- 
portion as wages were low or higii ; but it could not 
in the least affect the relative value of fish and 
game, as wages would be high or low at the same 
time in both occupations. If the huntet urged the 
plea of his paying a W-ge proportion, or the value 
of a large proportion/of his game for wages, as an 
inducement to the lusher man to give him more fish 
in exchange for /liis game, the latter would state 
that he was equally affeqted by the same cause ; and 
therefore under all variations of wages and profits, 
under all the effects of accumulation of capital, as 
lop^g as they continued by a day's labour to obtain 

8 " 



18 

respecfively the same quantity of fish, and the 
same quantity of game, the natural rate of ex- 
change would be, one deer for two salmon. 

If with4he-.siunAijc[uantity of lat)our a ^les s quati- 
tityaf-JAh, or a greater quantity of game were ob- 
tained, tlie_.value of fish would rise in comparison 
with that of _game. If, on the contrary, v\ ith tlie 
same quantity of labour a; Less quantity of game, 
or a greater quantity of fish was obtained, game 
would rise in comparison with fish. 

If there were any other commodity which was 
invariable in its value, requiring at all times, and 
under all circumstances, precisely the same quanti- 
ty of labour to obtain it, we she uld be able to ascer- 
tain, by comparing the value of fi.-'h and game with 
this commodity^ how miich of the variation was to 
be attributed to a cause which aliected the value of 
fish, and how much to a cause which affected the 
value of game. ' 

Supj)ose money to be that commodity. If a sal- 
mon were worth il. and a deer 2/. one deer would- 
be worth two salmon. But a deer might become 
of the value of three salmon, for more^ labour 
luight be required to obtain the deer, or less to get 
the salmon, or both these causes might operate at the 
same time. If we had this invariable standard, 
we might easily ascertain in what degree either of 
these causes operated. If salmon continued to 
sell for il. whilst deer rose to 3/. we might con- 
clude that more labour was, required to obtain the 
deer. If deer continued at the same price of S/. and 
salmon sold for 13^. 4^, we might then be sure that 
less labour was required to obtain the salmou; and 



10 

if deer rose to 21. iOs, and salmon fell to 16s. 8^. 
we should be convinced that both causes had ope- 
rated in producing the alteration of the relative 
value of these commodities, 

^ o alteration in the wages of labour could pro- 
duce any alteration in t'le relative value of tl;r8e 
commodities,* for if profits wereten per cent., then, 
to replace tlie 100/. circ^ulating capital with 10 per 
ceiit. proiit, there raustbe a return of 110/. to replace 
the equal portion of fixed capital, when profits are 
at the rate of 10 per cent, there should be annual- 
ly received 16.2/^. ; for, the present- value of an 
annuity of 16.271. for ten years, when money, is 
at 10 percent., is 100/. ; consequently all the game 
of the hunter should annually sell for 1S6.27/. 
But the capital of the fisherman being the same in 
quantity, and divided in the same proportion into 
fixed, and circulating capital, and being also of the 
same durability, he, to obtain the same profits, 
must sell his goods for the same value. If wages 
rose 10 per cent, and consieqiiently 10 per cent, 
more circulating capital were required in each 
trade, it would equallj' afipct both employments. 
In both, 210Z. instead of SOO/. would be required 
in order to produce the former quantity of commo- 
dities;, and these would sell precisely for the same 
money, namely i2Q.27l. : tluey would therefore be 
at the same relative value, and profits would be 
equally reduced in both trades. 

The prices of the commodities would not rise, 
because the money in which they are valued is by 
the supposition of an invariable value, always re- 
quiring the same quantity of labour to produce it. 



so 

If the gold mine from which money was obtain- 
ed were in the same country, in that case, after the 
rise of wages, 2i0l. might be necessary to be em- 
ployed, as capital, to obtain the same quantity of 
metal that 2001. obtained before : for the same rea- 
son that the hunter and fisherman required iOl. in 
addition to their capitals, the miner would require 
an equal addition to his. No greater quantity of 
labour would be required in any of these occupa- 
tions, but it would be paid for at a higher price, 
and the same reasons which should make the hun- 
ter and fisherman endeavour to raise the value of 
their game and fxsh, would caiise the owner of the 
mine to raise the value of his gold. This induce- 
ment acting with the same force on all these three 
occupations, and the relative situation of those en- 
gaged in them being the same before and after the 
rise of wages, the relative value of game, fish, and 
gold, would continue unaltered. Wages might rise 
twenty per cent., and profits consequently fall in 
a greater or less proportion, without occasioning 
the least alteration in the relative value of these 
commodities. 

Now suppose, tliat with the same labour and 
fixed capital, more fish could be produced, but no 
more gold or game, the relative value of fish would 
fall in comparison with gold or game. If, instead 
of twenty salmon, twenty-five were the produce of 
one day's labour, the price of a salmon would be 
sixteen shillings instead of a pound, and two sal- 
mon and a. half, instead of two salmon, would be 
given in exchange for one deer, but the price of 
deer would continue at 21. as before. In the same 



SI 

manner, if fewer fish could be obtained with the 
same capital and labour, fish would rise in com- 
parative value. Fish then would rise or fall in ex- 
changeable value, only because more or less labour 
was required to obtain a given quantity; and it 
never could rise or fall beyond the proportion of 
the increased or diminished quantity of labour re- 
quired. 

If xeJiadJUeiLaiiiniiiiriable standard, by which 
we could measure the variation in other commodi- 
ties, we should find that the utmost limit to which 
they could permanently rise, was proportioned to 
the additional quantity^of labour required for their 
production ; and that unless more labour were re- 
quired for their production, they could not rise in 
any degree whatever. A rise of wages would not 
raise them in money Value, nor relatively to any 
other commodities, the production of which re- 
quired no additional quantity of labour, which em- 
ployed the same proportion of fixed and circulating 
capital, and fixed capital of the same durability. 
If more or less labour weve required in the produc- 
tion of the other commodity, we have already 
stated that this will immediately occasion an alter- 
ation in its relative value, but such alteration is ow- 
ing to the altered quantity of requisite labour, and 
not to the rise of wages. 

If th^fixed and^irculating capitals were in dif- 
feren^roportions, or if the fixed capital were of 
different durability, then the relative value of the 
commodities produced, would be altered in conse- 
quence of a rise of wages. 



First, when the fixed and circulating capitals 
were in different proportions, suppose, that instead 
of 100/. fixed capital and 100/. circulating capital, 
the hunter should employ 150/. fixed capital and 
50Z. circulating capital, and that the fisherman 
should on the contrary employ only 50/. fixed capi- 
tal and 150/. circulating capital. 

If profits be 10 per cent., the hunter must sell 
his goods for 79/. 8.<?. For, 
To replace his circulating capital 

of 50/. with a profit of 10 per 

cent, would require a value of 551. 

To replace his fixed capital with 

10 per cent, profit, the present 

value of an annuity for ten years 

of S4.4/. at 10 per cent, being 

150/. .... - 24.4/. 



79.4/. 

If profits be 10 per cent., the fisherman must 
sell his goods for 173/. ^s. yd. 
To replace his circulating capital 

of 150/. with 10 percent, profit 165/. 

To replace his fixed capital with 

10 per cent, profit, one-third of 

the hunter's - - . > 8.13 



173.13/. 
Now if wages rise, although neither of these 
commodities should require more labour for their 
production, yet their relative value will be altered. ■ 
Suppose wages to rise 6 per cent., the hunter 
would not require more than an increase of 3/. to 



-2S 

his capital, to employ the same number of men, 
and obtain the same quantity of game ; the fisher- 
man would require three times that sum, or 9l, 
The profits of stock would fall to 4 per cent., the 
hunter would be obliged to sell his game for *^Sl, 
12a. 2d. 
To replace his circulating capital of 

$31. with a profit of 4 per cent. 55.i2L 

To replace fixed capital, annually 

wasted, the present value of an 

annuity of 18.49/. for ten years, 

when money is at 4 per cent., 

being 150/. - . . - 18.49 



/. 73.61 



The fisherman would sell his fish 

for 171/' Its. 5d. \iz. 
To replace his circulating capital 

of 159/. with a profit of 4 per 

cent. . . . - - /. 165.360 
To replace fixed capital annually 

wasted, the present value of an 

annuity of 6.163/., for ten years 

at 4 per cent., being 50/. - - 6.163 



/. 171.533 
Game was to fish before as 100 to 318. 
It would now be - - - as 100 to S33. 
Thus we see, that with every rise of wages, in 
proportion as the capital employed in any occupa- 
tion consists of circulating capital, its produce will 
be of greater relative value than the goods pro- 
duced in another occupation, where a less proper- 



24? 

tion of circulating, and a greater proportion of 
fixed caipital are employed. 

Secondly, suppose the proportions of fixed cap- 
ital to be the same; but of different degrees of 
durability. In proportion as fixed capital is less 
durable, it approaches to the nature of circulating 
capital. It will be consumed in a shorter time, 
and its value reproduced in order to preserve the 
capital of the manufacturer. We have just seen, 
that in proportion as circulating capital preponde- 
rates in a manufacture, when wages rise, the value 
of commodities produced in that manufacture, is 
relatively higher than that of commodities pro- 
duced in manufactures where fixed capital prepon- 
derates. In proportion to the less durability of 
fixed capital, and its approacli to the nature of cir- 
culating capital, the same effect will be produced 
by the same cause. 

Suppose that an engine is made, wliich will last 
for a hundred years, and that its value is 20,000Z. 
Suppose too, that this machine, without any la- 
bour whatever, could produce a certain quantity of 
commodities annually, and that profits were 10 per 
cent. : tlie whole value of the goods produced 
w^ould be annually 2,000Z. 2s. llrf. ; for the profit 
of 20,000/. at 10 per cent, per annum, is 

Z. 2,000 
And an annuity of 2s. iid. for 
100 years, at 10 per cent, will 
at the end of that period, re- 
place a capital of 20,000/. - - 2 11 

Consequently the goods must sell — — 

for /. 2,000 2 11 



25 

If the same amount of capital, viz. S0,000/., be 
employed in supporting productive labour, and be 
annually consumed and reproduced, as it is when 
employed in paying wages, then to give an equal 
profit of 10 per cent, on SO,OCOL the commodities 
produced must sell for 23,000/. Now suppose la- 
bour so to rise, that instead of 20,000/. being suf- 
ficient to pay the wages of those employed in pro= 
dueing the latter commodities, 20,952/. is required; 
then profits will fall to 5 per cent. : for as these 
commodities would sell for no more than before, 
viz. - - - - /. 22,000 and to 

produce them - - . - /• 20,952 would be 

requisite, there v^ould re- 

main no more than - .- /. 1048 on a cap- 

ital of 20,952/. If labour so rose, that 21,153/. 
were required, profits would fall to 4 per cent, and 
if it rose, so that 21,359/. was . employed, profits 
would fall to 3 per cent. 

But, as no wages would be paid by the owner of 
the machine, which would last 100 years, when 
profits fell to 5 per cent, the price of his goods 
must fall to 1007/. 13s. 8d. viz. 1000/. to pay his 
/profits, and 7/- 13s. 8^. to accumulate for 100 years 
at 5 per cent, to replace his capital of 20,000. 
When profits fell to 4: per cent, his goods must 
sell for 81(5/. Ss. 2d y and when at 3 per cent, for 
632/. 16s. 7d. By a rise in the price of labour 
then, under 7 per cent., which has no effect on the 
prices of commodities wholly produced by labour, 
a fall of no less than 68 per cent, is effected on 
those commodities wholly produced by machinery. 
If the proprietor of the machine sold his goods 
- 4 



26 

for more than 632/. 16s. "yd., he would get more 
than 3 per cent., the general profit of stock; and 
as others could furnish themselves with machines 
at the same price of 20,000/. they would he so 
multiplied, that he would he inevitahly obliged to 
sink the price of his goods, till they afforded only 
the usual and general profits of «tock. 

In proportion as this machine were less durable, 
prices would be less affected by the fall of profit, 
and the rise of wages. If, for example, the ma- 
chine would last only ten years, when profits were 
at 10 per cent, the goods should sell for /. 3254 
when at 5 per cent. - - - 2590 
4 per cent. - - - 2465 
3 per cent. - - - 2344 
for such are the sums requisite to place his profits 
on a par with others, and to replace his capital at 
the end of ten years ; or, which is the same thing, 
such are the annuities which 20,000/. would pur- 
chase for ten years at those rates. If the macliine 
would last only three years, when profits were 10 
per cent, the price of the goods would be /. 8042 
at 5 per cent, . . - . 7344 

4 per cent. ^ . - - 71^06 

3 per cent. - - - - 7070 
If it would last only one year, when profits were 
10 per cent, the goods would sell for 

/. 22,000 
tX 5 per cent. » . 31,000 

4 per cent. - - 20,800 

3 per cent. - - 20,600 : therefore 
when profits fell from 10 to 3 per cent, the goods, 



S7 

wliicli were produced with equal capitals, would 
fall 

68 per cent.' if the machine would last 100 years. 

28 per cent, if the machine would last 10 years. 

13 per cent, if it would last 3 years. 

And little more than 6 per cent if it ") ^ 

*^ CI year. 

would last only ------ ^ 

These results are of such importance to the sci- 
ence of political ecooomy, yet accord so little with 
some of its received doctrinesj which maintain 
that every rise in wages is necessarily transferred 
to the price of commodities, that it may not be su- 
perfluous to elucidate the subject still further. 

A manufacturer of hats employs a hundred men 
at- an annual expense of 50/. each, who produce 
him commodities of the value of 8000Z. A ma- 
chine calculated to last precisely a year, and to do 
equally well the same work as the 100 men, is of- 
fered to him for 5000?., the sum, exactly, that he 
is expending on wages. It will be a matter of in- 
diiference to the manufacturer, whether he purchase 
the machine, or continue to employ the men. Now 
if the wages of labour rise 10 per cent, and an ad- 
ditional capital of 500/. be consequently required 
to enable him to employ the same labour, whilst 
his commodities continue to sell for 8000/., he will 
no longer hesitate, but will at once purchase the 
machine, and will do the same annually, while wa- 
ges continue above the original 5000/. But will 
he be able now to purchase the machine at the for- 
mer price ? will not its value be increased, in con- 
sequence of the rise of labour? It would be in- 
creased, if there were no stock employed in its 



m 



2S 

construction, arid no profits to be paid to tlie maker 
of it. If, for example, the machine were produced 
by 100 men working one year upon it with wages 
of 501. each, and its price were 5000/., should 
those wages rise to 551. its price would be 5500/. : 
but this cannot be the case; less than 100 men are 
employed, or it could not be sold for 5000/. ; for 
out of the 5000/. must be paid the profits of thtt 
stock which employed the men. Suppose then 
that only eighty-fi.v"e men were employed at an ex- 
pense of 4250/. per annum, and that the 7^0/.,, 
which the sale of the machine would produce over 
and above the wages advanced to the men, consti- 
tuted the profits of the engineer's stock. When 
wages rose 10 per cent., he would be obliged to 
employ an additional capital of 425/., and would 
therefore employ 4G75/., instead of 4250/., on 
which capital he would only get a profit of 325/. 
if he continued to sell his machine for 5000/. ; but 
this is precisely the case of all manufacturers and 
capitalists ; the rise of wages affects them all. If 
therefore the maker of the machine should raise 
the price of his machine in consequence of arise of 
wages, an unusual quantity of capital would be 
employed in the construction of such machines, 
till their price afforded only the usual profits. The 
manufacturer of hats, by the employment of the 
machine, if he sells his hats for 8000/., is precisely 
in the same situation as before; he employs no 
more capital, and obtains the same profits. The 
competition of trade would not long allow this; 
for as capital would flow to the most profitable em- 
ployment, he would be obliged to lower the price 



29 

of liats, till his profits had sunk to the general 
level. Thus then is the public benefited by ma- 
chinery : these mute agents are always the pro- 
duce of much less labour than that which they dis- 
place, even when they are of the same money value. 
Through their influence, an increase in the price f% 
of provisions which raises wages, will affect fewer "^^ ^ 
persons: it will reach, as in the above instance, 
eighty-five men instead of a hundred ; and the 
saving which is the consequence, shews itself in 
the reduced price of the commodity manufactured. 
Neither machines nor any other commodities are 
raised in price, but all commodities which are 
made by machines fall, and fall in proportion to 
their durability. 

It appears, then, that in proportion to tbequahti- 
ty and the durability of the fixed capital employed 
in any kind of production, the relative prices of 
those commodities on which such capital is era-^ 
ployed, will vary inversely as wages ; Jthey will f 
fall as wages rise. It appears too that no eommod- 
ij;ijBS'Vi;hatever^re raised in absolute price, merely 
because wages rise ; that they never rise unless 
additional labour be bestowed on them ; but that\ 
all commodities in the production of which fixed } 
capital enters, not only do not rise with a rise of 
wages, but absolutely fall ; fall too as much as 68 
per cent., with a rise of seven per cent, in wages, 
if fixed capital be exclusively employed, and be of 
the duration of 100 years. 

The above statement, which asserts the compat- 
ibility of a rise of wages, with a fall of prices, 
has, I know, the disadvantage of novelty, aud 



so 

inusttrastto its own merits for advocates; whilst 
it has for its opponents, writers of distinguished 
and deserved reputation. It should however be 
carefully remembered, that in this whole argument 
I am supposing money to be of an invariable value ; 
in other words, to be always the produce of the 
same quantity of unassisted labour. Money, how- 
ever, is a variable commodity; and the rise of wa- 
ges as well as of commodities, is frequently occa- 
sioned by a fall in the value of money. A rise of 
wages from this cause will indeed be invariably 
accompanied by a rise in the price of commodities : 
hut in such cases, it will be found that labour and 
all commodities have not varied in regard to each 
other, and that the variation has been confined to 
money. 

Money? from its being li commodity obtained 

from a foreigCconnIfyO?^"f^"j^^ ^'^^ general 
medium of exchange between all civilized coun- 
tries, and from its being also distributed among 
those countries in proporriofis which are ever chang- 
ing with every improvement in commerce and ma- 
chinery, and with every increasing difficulty of ob- 
taining food and necessaries for an increasing popu- 
lation, is siihj^ect to incessant variations. In stating 
the principles which regulate exchangeable value 
and price, we should carefully distinguish between 
those variations which belong to the commodity it- 
self, and those which are occasioned by a variation 
in the medium in which value is estimated, or 
price expressed, 

A riseijl^jaMtges, from an alteration in the value 
of money, produces a general effect on price, and 



31 

for that reason it produces no real effect whatever 
on profits. On the contrary, a rise of wages, from 
the circumstance of the labourer being more liber- 
ally rewarded, or from a difficulty of procuring the 
necessaries on which wages are expended, does 
not produce the effect of raising price, but has a 
great effect in lowering profits. In the one case, 
no greater proportion of the annual labour of the 
country is devoted to the support of the labourers, 
in the other case, a larger portion is so devoted. 

ItisaiiCQEding to the division of the whole pro- 
duce of the land and labour of the country, be- 
tween the three classes of landlords, capitalists, 
and labourers, that we are to judge of rent, profit, 
and wages, and not according to the value at which 
that produce may be estimated in a medium which 
is confessedly variable. 

It is nqt^by the absolute quantity of produce ob- 
tained by either class, that w;e can correctly judge 
of the rate of profit, rent and wages, but by the 
quantity of labour required to obtain that produce. 
By improvements in machinery and agriculture, 
the whole produce may be doubled ; but if wages, 
rent, and profit, be also doubled, these three will 
bear the same proportions to one another, and nei- 
ther could be said to have relatively varied. But 
if wages partook not of the whole of this increase ; 
if they, instead of being doubled, were only in- 
creased one half, if rent, instead of being doubled, 
were only increased three fourths, and the remain- 
ing increase went to profit, it would, I apprehend, 
be correct for me to say, that rent and wages had 
fallen, while profits had risen ; for if we had an 



S2 

invariable standard, by which to measure the va- 
lue of this produce, we should find that a less value 
had fallen to the class of labourers and landlords, 
and a greater to the class of capitalists, than had 
been given before. We might find for example, 
that though the absolute quantity of commodities 
had been doubled, they were the produce of pre- 
cisely the former quantity of labour. Of every 
hundred hats, coats, and quarters of corn produced, 
if the labourers had 25 

The landlords 25 

And the capitalists 50 



100. 
And if, after these commodities were doubled in 
quantity, of every 100 

The labourers had only 22 

The landlords S2 

And the capitalists 56 



100. 
In that case I should say, that wages and rent had 
fallen and profits risen ; though iu consequence of 
the abundance of commodities, the quantity paid to 
the labourer and landlord would have increased in 
the proportion of 25 to 44. Wages are to be esti- 
mated by their real value, viz. by the quantity of 
labour and capital employed in producing them, 
and not by their nominal value either in coats, hats, 
money, or corn. Under the circumstances I have 
just supposed, commodities would have fallen to 
•|iali" their former value ; and, if money had not va- 
ried, to half their former price also. If then in 



33 

this medium, which had not varied in value, the 
wasres of the labourer should be found to have fal- 
len, it will not the less be a real fall, because they 
might furnish him with a greater quantity of cheap 
commodities, than his former wages. 

The variation in the value of money, however 
great, makes no difference in the rate of profits ; for 
suppose the goods of the manufacturer to rise from 
4000Z. to 2000/. or 100 per cent., if his capital, on 
which the variations of money have as much effect 
as on the value of produce, if his machinery, build- 
ings, and stock in trade rise more than 100 per 
cent, his rate of profits has fallen, and he has a 
proportionably less quantity of the produce of the 
labour of the country at his command. 

If, with captial of a given value, he double the 
quantity of produce, its value falls one half, and 
then it will bear the same proportion to the capital 
which produced it, as it did before. 

If at the same time that he doubles the quantity of 
produce by the employment of the same capital, the 
value of money is by any accident lowered one half, 
the produce will sell for twice the money value that 
it did before ; but the capital employed to produce 
it, will also be of twice its former value ; and there- 
fore in this case too, the value of the produce will 
bear the same proportion to the value of the capital 
as it did before; and althougli tiie produce be 
doubled, rent, wages, and profits will only vary as 
the proportions vary, in which this double produce 
may be divided among the three classes that share 
it. 

5 



34 

It appears then that the accumulation of capital, 
by occasioning different proportions of fixed and 
circulating capital to be employed in different 
trades, and by giving different degrees of durabili- 
ty to such fixed capital, introduces a considerable 
modification to the rule, which is of universal ap- 
plication in the early states of society. 

Commodities, though they continue to rise and 
fall, in proportion as more or less labour is neces- 
sary to their production, are also effected in their 
relative value by a rise or fall of profits, since equal 
profits, may be derived from goods w^hich sell for 
SOOOZ. and from those vi'hich sell for 10,000Z. ; and 
consequently the variations of those profits, inde-- 
pendently of any increased or diminished quantity 
of labour required for the goods in question, must 
affect their prices in different proportions. 

It appears too, that commodities may be lowered 
in value in consequeiice of a real rise of wages, but 
they never can be raised from that cause. On the 
pther hand, they may rise from a fall of wages, as 
they then lose the peculiar advantages of produc-! 
tjon, which high wages afforded them. 



CHAPTER II. 

On Rent, 

It remains however to be considered, wlietliet 
the appropriation of land, and the consequent crea- 
tion oi^ rent, will occasion any rariation in the rela- 
tive value of commodities, independently of the 
quantity of labour necessary to production. In or- 
der to understand this part of the subject, we must 
inquire into the nature of rent, and the laws by 
which its rise or fall is regulated. Rent is that por- 
tion of the produce of the earth, which is paid to 
the landlord for the use of the original and inde- 
structible powers of the soil. It is often however 
confounded with the interest and profit of capital, 
and in popular language the term is applied to 
■whatever is annually paid by a farmer to his land- 
lord. If, of two adjoining farms of the same ex- 
tent, and of the same natural fertility, one had all 
the conveniences of farming buildings, were, be- 
sides, properly drained and manured, and advan-^ 
tageously divided by hedges, fences, and Walls,while 
the other had none of these advantages, more re- 
muneration would naturally be paid for the use of 
one, than for the use of the other ; yet in both cased 
this remuneration would be called rent. But it is 



36 

evident, that a portion only of the money annually 
to be paid for the improved farm, would be given 
for the original and indestructible powers of the 
soil ; the other portion would be paid for the use of 
the capital which had been employed in ameliorat- 
ing the quality of the land, and in erecting such 
buildings as were necessary to secure and preserve 
the produce. Adam Smith sometimes speaks of 
rent, in the strict sense to which I am desirous of 
confining it, but more often in the popular sense, in 
which the term is usually employed. He tells us, 
that the demand for timber, and its consequent 
high price, in the more southern countries of Eu- 
rope, caused a rent to be paid for forests in Norway, 
which could before afford no rent. Is it not how- 
ever evident, that the person who paid, what he 
thus calls rent, paid it in consideration of the valu- 
able commodity which was then standing on the 
land, and that he actually repaid himself with a 
profit, by the sale of the timber ? If, indeed, af- 
ter the timber was removed, any compensation were 
paid to the landlord for the use of the land, for the 
purpose of growing timber or any other produce, 
with a view to future demand, such compensation 
might Justly be called rent, because it would be 
paid for the productive powers of the land ; but in 
the case stated by Adam Smith, the compensation 
was paid for the liberty of removing and selling 
the timber, and not for the liberty of growing it. 
He speaks also of the rent of coal mines, and of 
stone quarries, to which the same observation ap- 
plies — that the compensation given for the mine or 
quarry, is paid for the value of the coal or stone 



which can be removed from them, and has no con- 
nexion with the original and indestructible powers » J 
of the land. This is a distinction of great impor- 
tance, in an inquiry concerning rent and profits; 
for it is found, that the laws which regulate the 
progress of rent, are widely different from those 
which regulate the progress of profits, and seldom 
operate in the same direction. In all improved 
countries, that which is annually paid to the land- 
lord, partaking of both characters, rent and profit, 
is sometimes kept stationary by the effects of op- 
posing causes, at other times advances or recedes, 
as one or other of these causes preponderates. In 
the future pages of this work, then, whenever I 
speak of the rent of land, I wish to be understood 
as speaking of that compensation, which is paid 
to the owner of land for the use of its original and 
indestructible powers. 

On the first settling of a country, in which there 
is an abundance of rich and fertile land, a very 
small proportion of which is required to be culti- 
vated for the support of the actual population, or 
indeed can be cultivated with the capital which the 
population can command, there will be no rent ; 
for no one would pay for the use of land, when 
there was an abundant quantity not yet appropriat- 
ed, and therefore at the disposal of whosoever 
might choose to cultivate it. 

On the common principles of supply and de- 
mand, no rent could be paid for such land, for the 
reason stated, why nothing is given for the use of 
air and water, or for any other of the gifts of nar 
ture which exist in boundless quantity. With a 



^8 

given quantity of materials, and with the assist- 
ance of the pressure of the atmosphere, and the 
elasticity of steam, engines may perform work, and 
abridge human labour to a very great extent; but 
no charge is made for the use of these natural aids, 
because they are inexhaustible, and at every man's 
disposal. In the same manner the brewer, the 
distiller, the dyer, make incessant use of the air 
and water for the production of their commo- 
dities ; but as the supply is boundless, it bears no 
price.* If all land had the same properties, if it 
were boundless in quantity, and uniform in quali- 
ty, no charge could be made for its use, unless 
where it possessed peculiar advantages of situation. 
It is only then because land is of different quali- 
ties with respect to its productive powers, and be- 
cause in the progress of population, land of an in- 
ferior quality, or less advantageously situated, i^ 
called into cultivation, that rent is ever paid for tlie 
use of it. . When, in the progress of society, land 
of the second degree of fertility is taken into cul- 



* " The earth, as we have already seen, is not the only agent 
of nature which has a productive power ; but it is the otily 
one, or nearly so, that one set of men take to themselves, to 
the exclusion of others ; and of which consequently they can 
appropriate the benefits. The waters of rivers, and of the 
sea, by the power which they have of giving movement to our 
machines, carrying our boats, nourishing our fish, have also a 
productive power; the wind which turns our mills, and even 
the heat of the sun, work for us; but happily no one has yet 
been able to say : the 'wind and the sun are mine, and the 
service which they render must be paid for.' " — Econonde 
Politique, ^ar J. B. Say, vol. ii, p. 124. 



89 

tivation, rent immediately commences on that of 
the first quality, and the amount of that rent will 
depend on the difierence in the quality of these 
two portions of land. 

When land of the third quality is taken into 
cultivation, rent immediately commences on the se- 
cond, and it is regulated as before, by the differ- 
ence in their productive powers. At the same time, 
the rent of the first quality will rise, for that must 
always be above the rent of the second, by the dif- 
ference between the produce which they yield 
with a given quantity of capital and labour. AVith 
every step in the progress of population, which 
shall oblige a country to have recourse to land of a 
worse quality, to enable it to raise its supply of 
food, rent, on all the more fertile land, will rise. 

Thus suppose land — No. 1, S, 3, — to yield, 
with an equal employment of capital and labour, a 
net produce of 100, 90, and 80 quarters of corn. 
In a new country, where there is an abundance of 
fertile land compared with the population, and 
where therefore it is only necessary to cultivate 
No. 1, the whole net produce will belong to the 
cultivator, and will be the profits of the stock which 
he advances. As soon as population had so far in- 
creased as to make it necessary to cultivate No. 2, 
from which ninety quarters only can be obtained 
after supporting the labourers, rent would com- 
mence on No. 1 ; for either there must be two 
rates of profit on agricultural capital, or ten quar- 
ters, or the value of ten quarters must be with- 
drawn from the produce of No. 1, for some other 
purpose. Whether the proprietor of the land, or 



40 

auy other person, cultivated No. 1, these ten quar- 
ters would equally constitute rent ; for tlie cultiva- 
tor of No. 2 would get the same result witli his 
capital, whether he cultivated No. 1 , paying ten 
quarters for rent, or continued to cultivate No. 2, 
paying no rent. In the same manner it might be 
shewn that when No. 3 is brought into cultivation, 
the rent of No. S must be ten quarters, or the va- 
lue of ten quarters, whilst the rent of No. 1 would 

rise to twenty quarters ; for the cultivator of No. 3 
would have the same profits whether he paid twen- 
ty quarters for the rent of No. 1, ten quarters for 
the rent of No. S, or cultivated No. 3 free of all 
rent. 

It often, and indeed commonly happens, that be- 
fore No. S, 3, 4, or 5, or the inferior lands are cul- 
tivated, capital can be employed more productively 
on those lands which are already in cultivation. 
It may perhaps be found, that by doubling the ori- 
ginal capital employed on No. 1, though the pro- 
duce will not.be doubled, will not be increased by 
100 quarters, it may be increased by eighty-five 
quarters, and that this quantity exceeds what could 
be obtained by employing the same capital on land, 
No. 3. 

In such case, capital will be preferably employ- 
ed on the old land, and will equally create a rent ; 
for rent is always the difference between the pro- 
duce obtained by the employment of two equal 
quantities of capital and labour. If with a capi- 
tal of lOOOZ. a tenant obtain 100 quarters of wheat 
from his land, and by the employment of a second 
capital of lOOOi., he obtain a further return of 



41 

eighty-five, his landlord would have the pov^^er at 
the expiration of his lease, of obliging him to pay 
fifteen quarters, or an equivalent value, for addi- 
tional rent ; for there cannot be two rates of pro- 
fit. If he is satisfied with a diminution of fifteen 
quarters in the return for his second lOOOZ., it is 
because no employment more profitable can be 
found for it. The common rate of profit would be 
in that proportion, and if the original tenant re- 
fused, some other p<?rson would be found willing to 
give all which exceeded that rate of profit to the 
^owner of the laud from which he derived it. 

In this case, as well as in the other, the capital 
last employed pays no rent. For the greater pro- 
ductive powers of the first 1000/., fifteen quarters 
is paid for rent, for the employment of the second 
1000?. no rent whatever is paid. If a third 1000?. 
be employed on the same land, with a return of 
seventy-five quarters, rent will then be paid for the 
second 1000/. and will be equal to the difference 
between the produce of these two, or ten quarters ; 
and at the same time the rent of the first 1000?. 
will rise from fifteen to twenty-five quarters ; while 
the last lOOOL will pay no rent whatever. 

If then good land existed in a quantity much 
more abundant than the production of food for an 
increasing population required, or if capital could 
be indefinitely employed without a diminished re- 
turn on the old land, there could be no rise of rent; 
for rent invariably proceeds from the employment 
of an additional quantity of labour with a propor- 
tionally less returjQ. 

6 



42 

The most fertile, and most favourably situated 
land will be first cultivated, and the exchangeable 
value of its produce will be adjusted in the same 
manner as the exchangeable value of all other 
commodities, by the total quantity of labour neces- 
sary in various forms, from first to last, to produce 
it, and bring it to market. When land of an infe- 
rior quality is taken into cultivation, the exchangea- 
ble value of raw produce will rise, because more 
labour is required to produce it. 

The exchangeable value of all commodities, 
whether they be manufactured, or the produce of 
the mines, or the produce of land, is always regu- 
lated, not by the less quantity of labour that will 
suffice for their production under circumstances 
highly favourable, and exclusively enjoyed by 
those who have peculiar facilities of production ; 
but by the greater quantity of labour necessarily 
bestowed on their production by those who have ;i^',^ 
such facilities ; by those who continue to produce 
them under the most unfavourable circumstances; 
meaning"— by the most unfavourable circumstan- 
ces, the most unfavourable under which the quan- 
tity of produce required renders it necessary to 
carry on tlie production. 

Thus, in a cliaritable institution, where the poor 
are set to work with tlie funds of benefactors, the 
general prices of the commodities, which are the 
produce of such work, will not be governed by the 
peculiar facilities afforded to these workmen, but 
by the common, usual, and natural difficulties^ 
wliich every other manufacturer will have to en- 
counter. The manufacturer enjoying none of these 



43 



facilities might indeed be driven altogether from 
the market, if the supply afforded by these fa- 
voured workmen were en vial to all tlie wants of 
the community ; but if he continued the trade, it 
would be only on condition that he should derive 
from it the usual and general rate of profits on 
stock ; and that could only happen when his com- 
modity sold for a price proportioned to the quan- 
tity of labour bestowed on its production.* 



* Has not INL Say forgotten, in the following passage, that 
it i's the cost of productioti wiiicli ultimately regulates price? 
"The produce, of labour employed on the land has this pecu- 
liar property, that it does not become more dear by becoming 
more scarce, because population always diminishes at the 
same time that food diminishes, and consequently the quantity 
of these products demanded, diminishes at the same time as 
the quantity supplied. Besides it is not observed that corn 
is more dear in those places where there is plenty of unculti- 
vated land, than in completely cultivated countries. England 
and France were much more imperfectly cultivated in the mid- 
dle ages, than they are now ; they produced much less raw 
produce: nevertheless from all that we can judge by a com- 
parison with the value of "other things, corn was not sold at a 
dearer price. If the produce was less, so was the population ; 
the weakness of the demand compensated the feebleness of 
the supply." vol. ii. 338. M. Say being impressed with the 
opinion that the price of commodities is regulated by the 
price of labour, and justly supposing that charitable institu- 
tions of all sorts tend to increase the population beyond what 
it otherwise would be, and therefore to lower wages, says, 
"I suspect that the cheapness of the goods, which come from 
England is partly caused by the numerous charitable institu- 
tions which exist in that country." vol. ii. 9.T7. This is a 
consistent opinion in one who maintains that wages regulate 
price. 



41 

It is true, tltat on the best land, the same pro- 
duce would still be obtained with the same labour 
as before, but its value would he enhanced in con- 
sequence of the diminished returns obtained by 
those who employed fresh labour and stock on the 
less fertile land. Notwithstanding then, that the 
advantages of fertile over interior lands are in no 
case lost, but only transferred from the. cultivator, 
or consumer, to the landlord, yet since more labour 
is required on the inferior lands, and since it is 
from such land onl^ that we are enabled to furnish 
ourselves with- the additional supply of raw pvo- 
duce, the comparative value of that produce will 
continue permanently above its former level, and 
make it exchange for more hats, cloth, shoes, &c. 
&c. in the production of which no such additional 
quantity of labour is required. 

The reason then, why raw produce rises in 
comparative value, is because more labour is em- 
ployed in the production of the last portion ob- 
tained, and not because a rent is paid to the land- 
lord. The value of corn is regulated b} the quan- 
tity of labour bestowed on its production on that 
quality of land, or with that portion of capital, 
which pays no rent. Corn is not high because a 
rent is paid, but a rent is paid because corn is 
I high : and it has been justly observed, that no rc- 
l duction would take place in the price of corn, al- 
i though landlords shoi^ld forego the whole of their 
rent. Suclr a measure would only enable some 
farmers to live like gentlemen, but would not di- 
minish the quantity of labour necessary to raise 



45 

I'aw produce on the least productive laud in culti- 
vation. 

Nothing is more common than to hear of thtt 
advantages which the land possesses over every 
other source of useful produce, on account of the 
surplus which it yields in the form of rent. Yet 
when land is most abundant, when most produc- 
tive, aud most fertile, it yields no rent ; and it is 
only when its powers decay, and less is yielded in 
return for labour, that a share of the original pro- 
duce of the more fertile portions is set apart for 
rent. It is singular that this quality in the land, 
which sjiojild. -. have been noticed as an imperfec- 
tion, compared with the natural agents by which 
manufacturers, are assisted, should have been 
pointed out as constituting its peculiar pre-emi- 
nence. If air, water, the elasticity of steam, and 
the pressure of the atmosphere, were of various 
qualities ; if they could be appropriated, and each 
quality existed only in moderate abundance, they 
as well as the land would afford a rent, as the suc- 
cessive qualities were brought into use. With every 
worse quality employed, the value of the com- 
modities in the manufacture of which they were 
used would rise, because equal quantities of labour 
would be less productive. Man would do more by 
the sweat of his brow, and nature perform less ; 
and the land would be no longer pre-eminent for 
its limited powers. 

If the surplus produce which land affords in the 
form of rent be an advantage, it is desirable that, 
every year, the machinery newly constructed should 
be less efficient than the old, as that would undoubt- 



46 

edly give a greater excbangeahle value to the goocis 
manufactured, not only by that machinery, but by 
all the other machinery in the kingdom ; and a rent 
would be paid to all those who possessed the most 
productive machiney.*^ 

*"In agriculture too," says Adam Smitli, " nature labours 
along with man ; and though her labour costs no expense, its 
produce has its value, as well as that of the most expensive 
workman." The labour of nature is paid, not because slie 
does much, but because she does little. In proportion as she 
becomes niggardly in her gifts, she exacts a greater price for 
her work. Where she is munificiently Ijeneficent, she always 
works gratis. " The labouring cattle employed in agviculture, 
not only occasion, like the workmen in manufactures, the re- 
production of a value ecjual to their own consumption, or to 
the capital which employs them, together with its owner's pro- 
fits, but of a much greater valiie. Over and above the capital 
of the farmer and all its profits, they regularly occasion the 
reproduction of the rent of the landlord. This rent may be 
considered as the produce of those powers of nature, the use 
of which the landlord lends to the fanner. It is greater or 
smaller according to the supposed extent of those powers, or 
in other w ords, according to the supposed natural or improved 
fertility of the land. It is the work of nature which remains, 
after deducting or compensating every thing which can be re- 
garded as the v/ork of man. It is seldom less than a fourth, 
and frequently more than a third of the whole produce." No 
equal quantity of productive labour employed in manufac-- 
tures, can ever occasion so great a reproduction. In them 
nature does nothing, man does all; and the reproduction 
must always be in proportion to the strength of the agents 
that occasion it. The capital employed in agriculture, there- 
fore,, not only puts into motion a greater quantif r of produc- 
tive labour than any ccjual capital employed in manufactures, 
i)ut in proportion too to the quantity of tiic productive labour 
which it employs, it adds a much greater value to the annual 
produce of the land* and labouv of the country, to the ren! 



47 

The rise of rent is always the effect of the in- 
creasing wealth of the country, and of the difficulty 
of providing food for its augmented population. 
It is a symptom, hut it is never a cause of wealth ; 



wealth and revenue of its inhabitants. Of all the ways iu 
which a capital can be employed, it is by far the most advan- 
tageous to the society." — Book II. chap. y. p. 15. 

Does nature nothing for man in manufactures ? Are the 
powers of wind and water, Vv^hich move our machinery, and 
assist navigation, nothing? The pressure of the atmosphere 
and the elasticity of steam, which enable us to work the most 
stupendous engines — are they not the gifts of nature ? To say 
nothing of the effects of the matter of heat in softening and 
melting metals, of the decomposition of the atmosphere in 
the process of dyeing and fermentation. There is not a man- 
ufacture which can be mentioned, in which nature does not 
give her assistance to man, and give it too, generously and 
gratuitously. 

In remarking on the passage which I have copied from 
Adam Smith, Mr. Buchanan observes, "I have endeavoured 
to shew, in the observations on productive and unproductive 
labour, contained in the fourth volume, that agriculture adds 
no more to the national stock than any other sort of industry. 
In "dwelling on the reproduction of rent as so great an advan- 
tage *to society. Dr. Smith does not reflect that rent is the ef- 
fect of high price, and that what the landlord gains in this 
way, he gains at the expense of the community at large. 
There is no absolute gain to the society by the reproduction 
of rent; it is only one class profiting at' the expense of ano- 
ther class. The notion of agriculture yielding a produce, 
and a rent in consequence, because nature concurs with hu- 
man industry in the process of cultivation, is a mere fancy. 
It is not from the produce, but from the price at which the 
produce is sold, that the rent is derived ; and this price is got 
not because nature assists in the production, but because it is 
the price which suits the consumption to the supply." 



48 

for wealth often increases most rapidly while rent 
is either stationary, or even falling. Rent increases 
most rapidly, as the disposable land decreases 
in'its productive powers. Wealth increases most 
rapidly in those countries where the disposable 
land is most fertile, where importation is least res- 
tricted, and where through agricultural improve- 
ments, productions can be multiplied without any 
intrease in the proportional quantity of labour, 
and where consequently the progress of rent i* 
slow. 

If the high price of corn were the effect, and 
not the cause of rent, price Avould be proportional- 
ly influenced as rents were high or low, and rent 
would be a component part of price. But that 
corn which is produced with the greatest quantity 
of labour is the regulator of the price of corn, and 
rent does not and cannot enter in the least degree 
as a component part of its price. Adam Smith, 
therefore, cannot be correct in supposing that the 
original rule which regulated the exchangeable 
value of commodities, namely the compai'ati^'e 
quantity of labour by which they were produced, 
can be at all altered by the appropriation of land 
and the payment of rent. Raw material enters 
into the composition of most commodities, but the 
value of that raw material as well as corn, is reg- 
ulated by the productiveness of the portion of cap- 
ital last employed on the land, and paying no rent ^ 
and therefore rent is not a component part of the 
price of commodities. 

We have been hitherto considering the effects 
of the natural progress of wealth and population 



• 4y 

op rent, iu a country in which the land is of va- 
riously productive powers; and we have seen, that 
with every portion of additional capital which it 
becomes necessary to employ on the land with a 
less productive return, rent would rise. It follows 
from the same pfinciples, that any circumstances 
in the society which should make it unnecessary to 
employ the same amount of capital on the land, and 
which should therefore make the portion last em- 
ployed more productive, would lower rent. Any 
great reduction in the capital of a country, which 
should materially diminish the funds destined for 
the maintenance of labour, would naturally have 
this effect. Population regulates itself by the 
funds which are to employ it, and therefore always 
increases or diminishes with the increase or dimi- 
nution of capital. Every reduction of capital is 
therefore necessarily followed by a less effective 
demand for corn, by a fall of price, and by dimin- 
ished cultivation. In the reverse order to that in 
which the accumulation of capital raises rent, will 
the diminution of it lower refnt. Land of a less 
unproductive quality will be in succession relin- 
quished, the exchangeable value of produce will 
fall, and laud of a superior quality will be the 
land last cultivated, and that which will then pay 
no rent. 

The same effects may however be produced 
when the wealth and population of a country are 
increased, if that increase is accompanied by such 
marked improvements in agriculture, as shall have 
the same effect of diminishing the necessity of cul- 
tivating the poorer lands, or of expending the same 



• 50 .. 

amount of capital on tlie cultivation of the more 
fertile portions. 

If a million of quarters of corn be necessary fbr 
the support of a given population, and it be raised 
on land of the qualities of No. 1, 2, 3 ; and if an 
improvement be afterwards discovered by which it 
can be raised on No. 1 and 2, witliout employing 
No. 3, it is evident that the immediate effect must . 
be a fall of rent ; for No. S, instead of No. 3, will 
then be cultivated without paying any rent ; and 
the rent of No. 1, instead of being the difference 
between the produce of No. 3 and No. 1. will be 
the difference only between No. 2 and 1. With 
the same population, and no more, there can be no 
demand for any additional quantity of corn ; the 
capital and labour employed on No. 3, will be de- 
voted to the production of other commodities desi- 
rable to the community, and can have no effect in 
raising rent unless the raw material from which 
they are made cannot be obtained without employ- 
ing capital less advantageously on the land, in 
which case No. 3 must again be cultivated. 
- It is undoubtedly true, that the fall in the rela- 
tive price of raw produce, in consequence of the 
improvement in agriculture, or rather in conse- 

' quence of less labour being bestowed on its produc- 
tion, would naturally lead to increased accumula- 
tion; for the profits of stock would be greatly 
augmented. This accumulation would lead to an 
increased demand for labour, to higher wages, to 
an increased population, to a furtber demand for 

1 raw produce, and to an increased cultivation. It 
is only, however, after the increase in the popula- 



51 

tion,, that rent would be as liigh as before ; that is 
to say, after No. 3 wa» taken into cultivation. A 
considerable period would have elapsed, attended 
with a positive diminution of rent. 

But improvements in agricultcire are of two 
kind^s : those which increase the productive powers 
of the land, and those which enable us to obtain 
its produce with less labour. They both lead to a 
fall in the price of raw produce ; they both affect 
reut, but they do not affect it equally. If they 
did not occasion a fall in the price of raw produce, 
they would not be improvements ; for it is the es- 
sential quality of an improvement to diminish the 
quantity of labour before required to produce a 
commodity ; and this diminution cannot take place 
without a fall of its price or relative value. 

The improvements which increase the produc- 
tive powers of the land, are such as the more skil- 
ful rotation of crops, or the better choice of ifaa- 
nure. These improvements absolutely enable us 
to obtain the same produce from a smaller quantity 
of land. If, by the introduction of a course of 
turnips, I qan feed my sheep besides raising my 
corn, the land on which the sheep were before fed 
becomes unnecessary, and the same quantity of 
raw produce is raised by the employment of a less 
quantity of land. If I discover a manure which 
will enable me t» make a piece of land produce 
20 per cent, more corn, I may withdraw at least a 
portion of my capital from the most unproductive 
part of my farm. But, as I have before observed, 
it is not necessary that land should be thrown out 
of cultivation, in order to reduce rent : to produce 



52 



this effect, it is sufficient that successive portions of 
capit.il are employed on the same land with differ- 
ent results, and that the portion which gives the 
least result should be withdrawn. If, by the in- 
troduction of the turnip husbandry, or by the use 
of a more invigorating manure, I can obtain the 
same produce with less capita], and without dis- 
turbing the difl'erence betv^een the productive pow- 
ers of the successive portions of capital, I shall 
lower rent ; for a different and more productive 
portion will be that which will form the standard 
from which every other will be reckoned. If, for 
example, the successive portions of capital yielded 
100, 90, 80, 70; whilst I employed these four por- 
tions, my rent would be 60, or the difference be- 
tween 

' 100 



70 and 100 -= 301 
70 and 90 = 20 j 
70 and 80=- 10 f 

6oJ 



whilst the produce 
%vould be 340 



90 
80 
70 

L 340 

and while I employed these portions, i\\e rent 
would remain the same, although tlie produce of 
each should have an equal augmentation. If, in- 
stead of 100, 90,80,70, the produce should be 
increased to 135, 115, 105, 95, the rent would stil! 
be 60, or the difference between 

95 and 125 -= 30^ * ("125 

Avhilst the produce 1 15 

would be increased <^ 105 

to 440 95 



95 and 115 =-^20 
95 and 105 = 10 



^ 



60 



440 



5S 

But. with such an increase of produce, without an 
increase of demand, there could be no motive for 
employing so much capital on the land ; one por- 
tion would be withdrawn, and consequently the 
last proportion of capital would yield 105 instead 

of Q5, and rent would fall to 30, or the difference 
between 

105 and 125 = 20"^ whilst the produce would be still - rl25 

105 and 115 = 10 L adequate to the wants of the po- j 115 

~ I pulation, for it would be 545 i 105 

quarters, or I „.- 



the demand being only for 340 quarters. — But 
there are improvements which may lower the rela- 
tive value of produce without lowering the corn 
rent, though they will lower the money rent of 
land. Such improvements do not increase the pro- 
ductive powers of the land, but they enable us to 
obtain its produce with less labour. They are ra- 
ther directed to the formation of the capital appli- 
ed to the land, than to the cultivation of the land 
itself. Improvements in agricultural implements, 
such as the plough and the threshing machine, 
economy in the use of horses employed in husband- 
ry, and a better knowledge of the veterinary art, 
are of this nature. Less capital, which is the 
same thing as less labour, will be employed on the 
land; but to obtain the same produce, less land 
cannot be cultivated. Whether improvements of 
this kind, however, affect corn rent, must depend 



5i 

on the question,' "whether the difference between the 
produce obtained by the employment of different 
portiojis of capital be increased, stationary, or di- 
minished. If four portions of capital, 50, 60, 70, 
80, be employed on the land, giving each the same 
results, and any improvement in the formation 
of such capital should enable me to withdraw 5 
from each, so that they should be 45, 55, 65, and 
75, no altera.tion would take placein the corn rent ; 
but if the improvements were such as to enable 
me to make the whole saving on the largest por-" 
lion of capital, that portion which is least pro- 
ductively employed, corn rent would immediately 
fall, because the difference between the capital 
most productive and the capital least productive 
would be diminished; and it is this differeace 
which constitutes rent. 

Without multiplying instances, I hope enough 
has been said to shew, that whatever diminishes 
the inequality in the produce obtained from succes- 
"sive portions of capital employed on the same or 
on new land, tends to lower rent; and that what- 
ever increases that inequality, necessarily produces 
an opposite effect, and tends to raise it. 

In speaking of the rent of the landlord, we have 
rather considered it as the f>i'oportion of the whole 
produce, without any reference to its exchangeable 
value ; but since the same cause, the diflRculty of pro- 
duction, raises the exchangeable value of raw pro- 
duce, and raises also the proportion of raw produce 
paid to the landlord for rent, it is obvious that the 
landlord is doubly benefitted by difficulty of produc- 



lion. First he obtains a greater share, and second- 
ly the commodity in which, he is paid is of greater 
value.* 

■ * To make this obvious, and to shew the degrees in which 
corn and money rent will vary, let us suppose that the labour 
of ten men will, on land of a certain quality, obtain 180 quar- 
ters of wheat, and its value to be 4/. per quarter, or 720Z. ; 
and that the labour of ten additional men will, on the same or 
any other land, produce only 170 quartei'S in adtiition ; wheat 
would rise from 4/. to 41. 4s. Sd. for 1.70 : 180 : : 41. : 4L4s. 
Sd.; or, as in the production of 170 quarters, the labour of 
10 men is necessary in one case, and only of 9.44 in the other, 
the rise \vould be as 9.44 to 10, or as 41. to 41. 4s. Sd. If 10 
men be further employed, and the return be 

160, the price will rise to 14 10 
150, . ,. . .' . 4 16 
140, .... 5 2 10. 
Now if no rent was paid for the land which yielded 180 
quarters when corn was at 4/. per quarter, the value of 10 
quarters would be paid as rent when only. 170 could be pro- 
cured, which, at 4/. 4s. Sd. would be 42^. 7s. 6d. 

20qrs.~) ^ fieoT , Cl4 10 01 ,, fl90 

30 qrs. i J \ 150 P^T ?^:"f"N 4 16 l;:^<^ 144 
40qrs.jl [ 140 J ^^d, which at | ^ ^ ^^ jbe ^^^^ ^3 ^ 

f 100 -^ r 100 

Corn rent then would in- ^ 200 ( and money rent in the i 212 

crease in the proportion of ) 300 f proportion of J 340 

V (400) (485 



CHAPTER III. 

On the Merit of Mines, 

'I'he metals, like other things, are obtained by 
labour. Nature, indeed, produces them ; but it is 
the labour of man which extracts them from the 
bowels of the earth, and prepares them for our ser- 
vice. 

Mines, as well as land, generally pay a rent to 
their owner ; and this rent, as well as the rent of 
land, is the effect, and never the cause of the high 
value of their produce. 

If there were abundance of equally fertile mines, 
#hich any one might appropriate, they could yield 
no rent; the value of their produce woultl depend 
on the quantity of labour necessary to extract the 
the metal from the mine and bring it to market. 

But there are mines of various qualities, afford- 
ing very different results, with equal quantities of 
labour. The metal produced from the poorest 
mine that is worked, must at least have an ex- 
changeable value, not only sufficient to procure all 
the clothes, food, and other necessaries consumed 
by those employed in working it, and bringing the 
produce to market, but also to afford the common 
and ordinary profits to him who advances the stock 

necessarv to mrrv on the undertaking. The re- 

*" 8 .,...,■ 



turn for capital from tlie poorest miae paying no 
rent, would regulate the rent of all the other more 
productive mines. This mine is supposed to yield 
the usual profits of stock. All thkt tiie other mines 
produce more than this, will necessarily be ])aid to 
the owners for rent. Since this principle is precise- 
ly the same as that which we have' already laid 
down respecting land, it wilt not be necessary fui'- 
ther to enlarge on it. 

It will be sufficient to remark, that the saifie ge- 
neral rule which regulates the value of raw produce 
and manufactured commodities^ is applicable also to 
the metals ; their value depending not on the rate of 
profits, nor on the rate of wages, nor on the rent 
paid for mines, but on the total quantity of labour 
necessary to obtain the metal, and to bring it to 
market. 

Like every other commodity, the value of the 
metals is subject to variation. Improvements may 
be made in the implements and machinery used in 
mining, which may considerably abridge labour ; 
ii^ew and more productive mines may be discovered, 
in which, with the same labour, more metal may be 
obtained ; or the facilities of bringing it to market 
may be increased. In either of these cases the me- 
tals wouUl fall in value, and would therefore ex- 
change for a less quantity of other things. On the 
other hand, from the increasing difficulty of obtain- 
ing the metal, occasioned by the greater depth at 
w^ich the mine must be worked, and the accumu- 
lation of water, or any other contingency, its value, 
compared with that of other things, might be con- 



59 

It lias therefore been justly observed, that how- 
ever honestly the coin of a country may conform to 
its standard, money made of gold and silver is still 
liable to fluctuations in value, not only to accidental 
and temporary, but to_ permanent and natural vari- 
ations, in the same manner as other commodities. 

By the discovery of America and the rich mines 
in which it abounds, a very great eifect.was produc- 
ed on the natural price of the precious metals. 
This effect is by many supj5.Qsed not yet to have 
terminated. It is probable hoA^ever that all the ef- 
fects on the value of the metals, resulting from th4 
discovery of America have long ceased, and if an^ 
fall has of late years taken place in their value, it 
is to be attributed to improvements in the mode of 
working the mines. 

From whatever cause it may have proceeded, 
the effect has been so slow ^nd gradual, that little 
practical inconvenience has been felt from gold and 
silver being the general medium in which the value 
of all other things is estimated. Though undoubt- 
edly, a variable measure of value, there is probably 
no commodity subject to fewer variations. This 
and the other advantages which these metals pos- 
sess, sueli as their hardness, their malleability, their 
divisibility, and many more, have justly secured 
the preference every where given to them, as a 
standard for the money of civilized countries. 

Having acknowledged the imperfections to which 
money made of gold and silver is liable as a mea- 
sure of value, from the greater or less quantity 
of labour which may, under varying circumstances, 
be necessary for the production of those me- 



, 60 

tals, we may be permitted to make the suppositiou 
that all these imperfections were removed, and that 
equal quantities of labour could at all times ob- 
tain, from that mine which paid no rent, equal 
quantities of gold. Gold would then be an invari- 
able measure of value. The quantity indeed would 
enlarge with the demand, but its value would be 
invariable, and it would be eminently well calcu- 
lated to measure the varying value of all other 
things. I have already in a former part of this 
work considered gold as endowed with this uni- 
formity, and in the following chapter I shall con- 
tinue the supposition. In speaking therefore of va- 
rying price, the variation will be always considered 
as being in the commodity, and never in the medi- 
um in which it is estimated. 



CHAPTER IV. 

On JSTatural and Market Price. 

In making labor the foundation of the value 
of commodities, and the comparative quantity of 
labor which is necessary to their production, the 
rule which determines the respective quantities of 
goods which shall be given in exchange for each 
other, we must not be supposed to deny the acci- 
dental and temporary deviations of the actual or 
market price of commodities from this, their pri- 
mary and natural price. 

In the ordinary course of events, there is no 
commodity which continues for any length of time 
to be supplied precisely in that degree of abun- 
dance, which the wants and wishes of mankind re- 
quire, and therefore, theVe is none which is not sub- 
ject to accidental and temporary variations of price. 

It is only in consequence of such variations, that 
capital is apportioned precisely, in the requisite 
abundance and no more, to the production of the 
different commodities which happen to be in de- 
mand. With the rise or fall of price, profits are 
eilevated above, or depressed below their general 
level, and capital is either encouraged to enter into, 
or is warned to depart from the particular employ- 
ment in which the variation has taken place. 



en 

Whilst every man is free to employ his capital 
where he pleases, he will naturally seek for it that 
employment wliich is most advantageous ; be will 
naturally be dissatisfied with a profit of 10 per 
cent., if by removing his capital he can obtain a 
profit of 15 percent. This restless desire on the 
part of all the. employers of stock, to quit a less 
profitable for a more advantageous business, has a 
strong tendency to equalize the rate of j)rofits of 
till, or to fix them iirsuch proportions, as may in 
the estimation of the parties, compensate for any 
advantage which one may have, or may appenr to 
have over the other. It is perl.aps very difficult to 
trace the steps by which this change is effected :-,i|; 
is probably effected, by a manufacturer not abso- 
lutely changing his employment, but only lessen- 
ing the quantity of capital he has in that en>ploy- 
ment. In all rich countries, there is a number of 
men forming what is called the monied class ; these 
men are engaged in no trade, but live on the inte- 
rest of their money, which is employed in dis- 
counting bills, or in loans to the more industrious 
part of the community. The bankers too employ 
a large capital on the same objects. .The capital 
so employed forms a circulating capital of a large 
amount, and is employed, in larger or smaller pro- 
portions, by all the different trades of a country. 
There is perhaps no ; manufacturer, however 
rich, who limits his business to the extent that 
. hjs own funds alone will allow: he has always 
s(«ne portion of this floating capital, increasing or 
dilniuishing according to the activity of the demand 
for bis commodities. When, the demand for silks 



63 

increases, and that for cloth diminishes, the clothier 
does not reniove witii his capital to the silk trade, 
bat he dismisses some of hiswovkmejij he discon- 
tinues his demand for the loan from bankers and 
nionied men ; whiVe the case of the silk manufactu- 
rer is the reverse : he wishes to employ more work- 
men, and thus his motive for borrowing is increas- 
ed : *he borrows more, and thus capital is transfer- 
red from one employment to another, without the 
necessity of a manufacturer discontinuing his usual 
occupation. When we look to the markets of a 
large town, and observe how regularly they are 
supplied both with home and foreign commodities, 
in the quantity in Avhich they are required, under 
all the circumstances of varying demand, arising 
from tire •caprice of taste, or a ch&,nge in the amount 
of population, without often |)roducing either the 
effects of a glut from a too abundant supply, or an 
enormously high price from the supply being une- 
qual to the demand, we must confess that the princi- 
ple which apportions capital to each trade in the 
precise amount that it is required, is more active 
than is generally supposed. 

A capitalist, in seeking profitable employment 
for his funds, will naturally take into cons^ideration 
all the advantages which one occupation possesses 
over another, lie may therefore be willing to fore- 
go a part of iiis money profit, in consideration of 
the security, cleanliness, ease, or any other real or 
fancied advantage which one employment may 
possess over another. 

If from a consideration of these circumstances, 
the profits of stock should be so adjusted that ia 



64 

one trade they were 20, in another S5, and in ano- 
ther 30 per cent., they would probably continue 
permanently with that relative difference, and with 
that difference only ; for if any cause should elevate 
the profits of one of these trades 10 per cent,..eis- , 
ther these profits would be temporary, and would 
soon again fall back to their usual station, or the 
profits of the others would be elevated in the same 
proportion. 

Let us suppose that all commodities are at their 
natural price, and consequently that the profits of 
capital in all employments are exactly at the same 
rate, or differ only so much as, in the estimation of 
the parties, is equivalent to an;jr real or fancied ad- 
vantage which they possess or forego. Suppose 
now, that a changeof fashion should increase the de- 
mand for silks, and lessen that for woollens ; their 
natural price, the quantity of labour necessary to 
their production, would continue unaltered, but the 
market price of silks would rise, and that of wool- 
lens would fall; and consequently the profits of the 
silk manufacturer would be above, whilst those of 
the woollen manufacturer would be below, the ge- 
neral and adjusted rate of profits. Not only the 
profits, but tlie wages- of the workmen would be 
affected in these employments. This increased 
demand for silks would however soon be supplied, 
by the transference of capital and labour from the 
woollen to the silk manufacture; whert the market 
prices of silks and vi'ooUens would again approach 
their natural prices, and then the usual profits 
would be obtained by the respective mannfactnr 
ers of those commodities. 



6j 

It is then the desire, wliich every capitalist has, 
of diverting his funds from a less to a more profit- 
able employment, that prevents the market price 
of commodities from continuing for any length of 
time either much above, or much below their natu- 
ral price. It is tliis competition which so a<!justs 
the exchangeable value of commodities, that after 
paying the wages for-tiie labour necessary to tiieir 
production, and all other expenses required to put 
the capital employed in its original state of efficien- 
cy, the remaining value or overplus will in each 
tra,de be in proportion to the value of the capital 
employed. 

In the 7th chap, of the Wealth of Nations, all 
that concerns this question is most ably treated. 
Having fully acknowledged the temporary eifects 
which, in particular employments of capital, may 
be produced on the prices of commodities, as 
well as on the wages of labour, and the profits of 
stock, by accidental causes, without influencing the 
general price of commodities, wages, or profits, 
since these eil'ects are equally operative in all siages 
of society, we may be permitted to leave them 
entirely out of our consideration, whilst we are 
treating of tlie laws which regulate natural prices, 
natural wages, and natural profits, effects totally 
independent of these accidental causes. In speak- 
ing then of the exchangeable value of commodities, 
or the power of purchasing possessed by any one 
commodity, I mean always iWkt power which it 
would possess, if not disturbed by any temporary 
or accidental cause, and which is its natural 
price. 



CHAPTER V, 



On Wages. 



Labour, like all other things which are pur- 
chased and sold, and which may be increased or 
diminished in quantity, has its natural and its mar- 
ket price. The natural price of labour is that 
price which is necessary to enable the labourers, 
one with another, to su])sist and to perpetuate their 
race, without either increase or diminution. 

The power of the labourer to support himself, 
and the family which may be necessary to keep up 
the number of labourers, does not depend on the 
quantity of money, which he may receive for wa- 
ges ; but on the quantity of food, necessaries, and 
conveniences become essential to him from habit, 
which that money will purchase. The natural 
price of labour, therefore, depends on the price of 
the food, necessaries, and conveniences required 
for the support of the labourer and his family. 
With a rise in the price of food and necessaries, 
the natural price of labour will rise ; with the fall 
in their price, the natural price of labour will fall. 

With the progress of society, the natural price 
of labour has always a tendency to rise, because 
one of the principal commodities by which its na- 
tural price is regulated, has a tendency to become 



68 

dearer, from the greater difficulty of produciug it. 
Asj liiiweveu, tlie iuiprovemeiits in, agriculture, the 
discovery of new markets, whence piovisions may 
be imported, may for a time counteract the tenden- 
cy to a rise in the price of necessaries, and may 
even occasion tlieir natural price to fall, so will the 
same causes produce the correspondent effects on 
the natural price of labour. 

The natural price of all commodities ex"ccpting 
-raw produqB and labour has a tendency to fall, in 
tlie progress of wealth and population ; for though, 
on one liand, they are enhanced in real value, from the 
rise in the natural price of the raw material of which 
they are made, this is more than counterbalanced by 
the improvements in machinery, by the hetter divi- 
sion and distribution of labour, and bytiie increas- 
ing skill, both in science and art, of tlie producers. 
' The marliet price of labour is the price wiiich is 
really paid for it, from the natural operation of the 
projHU'tion of the supply to the demand ; labour is 
dear vyhen it is scarce, and cheap when it is plenti- 
ful. However much the market price .of labour may 
deviate from its natural price, it has, like commo- 
dities, a tendency to conform to it. 

It is when the market price of la!>our exceeds its 
natural price, that the condition of the labourer is 
flourishing and happy, that he has it in bis power 
to command a greater proportion of tlse neccssa- 
rie-i and enjoynjcnts of life, and tliercfore to rear a 
healthy and liumerous family. When, however, by 
the encoura^cnicnt which high wages.giveto the in-, 
creafse of population.- tlie number of labourers is in- 



69 

creased;, wages a£;ain fall to their natural price, and 
indeed from a re-action sonelimes fall below it. 

When the market price of labour is below its 
natural price, the condition of the labourers is most 
wretched : then poverty deprives them of those 
comforts which custom renders absolute necessav 
I'ie.s. It is only after their privations have reduced 
tlieir number, orthed<«mand for labour has increas- 
ed, that the market price of labour will rise to its 
natural price, and that the labourer will have the 
moderate coaiforts, which the natural price of wa- 
ges will ^iibrd. 

I»fotwithstanding the tendency of wages to con- 
form to their natural rate, their market rate may^» 
in an improving society, for an Indefinite period, be 
constantly aboxe it ; for np ^oonerm'ay the iip.pulse, 
which an increased capital gives to a new demand 
for labour be obeyed, than another increase of ca- 
pital may produce the same effect; and thus if the 
increase of capital be gradual and constant, the 
demand for labour may give a continued stimulus 
to an increase of people. 

Capital is that part of the wealth of a country, 
Avhich is employed in production, and consists of 
food, clothing, tools, raw material, machinery, &c. 
necessary to give effect to labour. 

Capital may increase in quantity at the same time 
that its value rises. An addition may be made to 
the food and clothing of a country, at the same 
time that more labour may be required to produce 
the additional quantity than before ; in that case 
not only the quantity, but the value of capital will 
rise. 



70 

Orcapital may increase without its value increas- 
ing, and even while its value is actually diminishing; 
not only may an addition be made to the food and 
clothing of a country, but the addition may be made 
by the aid of machinery, without any increase, and 
even with an absolute diminution in the propor- 
tional quantity of labour required to produce them. 
The quantity of capital may increase, while neither 
the whole together, nor any part of it singly, will 
have a greater value than before. 

In the first case, the natural price of wages, 
which always depends on the price of food, cloth- 
ing, and other necessaries, will rise ; in the second, 
it will remain stationary, or i*all ; but in both cases 
the market rate of wages will rise, for in propor- 
tion to the increase of capital will be the increase 
in the demand for labour; in proportion to the 
work to be done will be the demand for those who 
are to do it. 

In both cases too the market price of labour will 
rise above its natural price ; and in both cases it 
will have a tendency to conform to its natural price, 
but in the first ease this agreement will be most 
speedily effected. The situation of the labourer 
will be improved, but not much improved ; for the 
increased price of food and necessaries will absorb 
a large portion of his increased wages; conse- 
quently a small supply of labour, or a trifling in- 
crease in the population, will soon reduce the mar- 
ket price to tlie tlieu increased natural price of la- 
bour. 

In the second case, the condition of the labourer 
will be very greatly improved; he will receive in- 



71 

creased money wages, without having to pay any 
increased price, and perhaps, even a diminished 
price for the commodities which he and his family 
consume; and it will not be till after a great ad- 
dition has been made to the population, that the 
market price of wages will again sink to their then 
low and reduced natural price. 

Thus, then, with every improvement of society, 
with every increase in its capital, the market wages 
of labour will rise ; but the permanence of their 
rise will depend oh the question, whether the natu- 
ral price of wages has also risen; and this again 
will depend on the rise in the natural price of those 
necessaries, on which the wages of labour are ex- 
pended. 

It is not to be understood that the natural price 
of wages, estimated even in food and necessaries, 
is absolutely fixed and constant. It varies at dif- 
ferent times in the same country, and very mate- 
rially differs in different countries. It essentially 
depends on the habits and customs of the people. 
An English labourer would consider his wages un- 
der their natural rate, and too scanty to support a 
family, if they enabled him to purchase no other 
food than potatoes, and to live in no better habita- 
tion than a mud cabin; yet these moderate de- 
mands of nature are often deemed sufficient in 
countries where ^' man's life is cheap," and his 
wants easily satisfied. Many of the conveniences 
now enjoyed in an English cottage, would have 
been thought luxuries at an early period of oiir his- 
tory. 



7:^ 

From maiiulacturetl commodities always fulling, 
and raw produce always rising, Avitb tlie-progress 
of society, such a disproportion in their relative va- 
lue is at length created, that in rich countries a la- 
bourer, by the sacrifice of a very small quantity 
only of his food, is able to provide liberally for 
all his other wants. 

Independently of the variations in the value of 
money, which necessarily aifect wages, but which 
we have here supposed to have no operation, as we 
have considered money to be uniformly of the same 
value, wages are subject to a rise or fall from two 
causes : 

,1st. The supply and demand of labourers. 

Sdly. The price of the commodities on which 
the wages of labour are expended. 

In different stages of society, the accumulation 
of capital, or of the means of employing labour, is 
more or less rapid, and must in all cases depend on 
the productive powers of labour. The produc- 
tive powers of labour are generally greatest when 
there is an abundance of fertile land : at such peri- 
ods accumulation is often so rapid, that labourers 
cannot be supplied with the same rapidity as ca- 
pital. • 

It has been calculated, that nnder favourable cir- 
cumstances population may be.doubled in twenty- 
five years; but under the same favourable circum- 
stances, the whole capital of a country might pos- 
sibly be doubled in a sliorter period. In that case, 
wages during the whole period would have a 
tendency to rise, because the demand for labour 
would increase still faster then the supply. ' 



Iii new settlements, where the arts and know^ 
ledge of countries far advanced in refinement are 
introduced, it is probably that capital has a ten- 
dency to increase faster than mankind : and if the 
deficiency of labourers were not supplied by more 
populous countries, this tendency would very much 
raise the price of labour. In proportion as these 
countries becomes populous, and land of a worse 
quality is taken into cultivation, the tendency to an 
increase of capital diminishes ; for the surplus pro- 
duce remaining, after satisfying the wants of the 
existing population, must necessarily be in propor- 
tion to the facility of production, viz. to the small- 
er number of persons employed in production. Al- 
though, then, it is probable, that under the most 
favourable circumstances, the power of production 
is still greater than that of population, it will not 
long continue so ; for the land being limited in 
quantity, and differing in quality ; with every in- 
creased portion of capital employed on it, there 
will be a decreased rate of production, whilst the 
power of population continues always the same. 

In those countries v/here there is abundance of 
fertile land, but where, from the ignorance, in- 
dolence, and barbarism of the inhabitants, they 
are exposed to all the evils of want and famine, 
and where it has been said that population presses 
against the means of subsistence, a very different 
remedy should be applied from that which is ne- 
cessary in long settled countries, where, from the 
diminishing rate of the supply of raw produce, all 
the evils of a crowded population arc experienced. 
In the one case, the misery proceeds from the in- 
10 



74 

activity of the people. To be made happier, they 
need only to be stimulated to exertion ; with such 
exertion, no increase in the population can be too 
great, as tiie powers of production are still greater. 
In the other case, the population increases faster 
than the funds required for its support. Every 
exertion of industry, unless accompanied by a 
diminished rate of increase in the population, will 
add to the evil, for production cannot keep pace 
with it. 

In some countries of Europe, and many of Asia, 
as well as in the islands in the South Seas, the 
people are miserable, either from a vicious govern- 
ment or from habits of indolence, which make 
them prefer present ease and inactivity, though 
without security against want, to a moderate degree 
of exertion, with plenty of food and necessaries. 
By diminishing their population, no relief would 
be afforded, for productions would diminish in as 
great, or even in a greater proportion. The remedy 
for the evils under which Poland and Ireland suffer, 
which are similar to those experienced in the South 
Seas, is to stimulate exertion, to create new wants, 
and to implant new tastes ; for those countries must 
accumulate a much larger amount of capital, be- 
fore the diminished rate of production will render 
the progress of capital necessarily less rapid than 
the progress of population. The facility with 
which the wants of the Irish are supplied, permits 
that people to pass a great part of their time in 
idleness : if the population were diminished, this 
evil would increase, because wages would rise, and 
therefore the labourer would be enabled, in ex- 



75 

cliange for a still less portion of liis labour, to 
obtain all that his moderate wants require. 

Give to the Irish labourer a taste for the com- 
forts and enjoyments which habit has made essen- 
tial to the English labourer, and he would be then 
content to devote a further portion of his time to 
industry, that he might be enabled to obtain them. 
Not only would all the food now produced be 
obtained, but a vast additional value in those other 
commodities, to the production of which the now 
unemployed labour of the country might be direcife 
ed. In those countries, where the labouring classes 
have the fewest wants, and are contented with the 
cheapest I'ood, the people are exposed to the great- 
est vicissitudes and miseries. They have no place 
of refuge from calamity ; they cannot seek safety 
in a lower station ; they are already so low, that 
they can fall no lower. On any deficiency of the 
chief article of their subsistence, there are few 
substitutes of which they can avail themselves, 
and dearth to them is attended with almost all the 
evils of famine. 

In the natural advance of society, the wages of 
labour will have a tendency to fall, as far as they 
are regulated by supply and demand ; for the sup- 
ply of labourers will continue to increase at the 
same rate, whilst the demand for them will increase 
at a slower rate. If, for instance, wages were re- 
gulated by a yearly increase of capital, at the rate 
of 2 per cent., they would fall when it accumu- 
lated only at the rate of 1 f per cent. They would 
fall still lower when it increased omy at the rate 
of 1, or I per cent., and would continue to do so un- 



76 

til the capital became stationary, wIich wages also 
would become stationary, and be only sufficient to 
keep up the numbers of the actual population. 1 
«ay that, under these circumstances, wages would 
fall, if they were regulated only by the supply and 
demand of labourers ; but we must not forget that 
wages are also regulated by the prices of the com- 
modities on which they are expended. 

As population increases, these necessaries will 
be constantly rising in price, because more labour 
5vill be necessary to produce them. If, then, the 
money wages of labour should fall, whilst every 
commodity on which the wages of labour were 
expended rose, the labourer would be doubly 
affected, and would be soon totally deprived of 
subsistence. Instead, therefore, of the money 
wages of labour falling, they Avould rise ; but they 
would not rise sufficiently to enable the labourer to 
purchase as many comforts and necessaries as he did 
before the rise in the price of those commodities. 
If his annual wages were before 24/., or six quar- 
ters of corn when the price was 4/. per quarter, he 
would probably receive only the value of five 
quarters when corn rose to 51. per quarter. But 
five quarters would cost 251. ; he would therefore 
receive an addition in his money wages, though 
with that addition he would be unable to furnish 
himself with the same quantity of corn and other 
commodities, which he had before consumed in his 
family. 

Notwithstanding, then, that the labourer would 
be really worse paid, yet this increase in his 
wages would necessarily diminish the profits of 



77 ' 

the manufacturer; for his goods would sell at 
no higher price^ and yet the expense of produchig 
them would be increased. This, however, will be 
considered in our examination into the principles 
which regulate profits. 

It appears, then, that the same cause which raises 
rent, namely, the increasing difficulty of providing 
an additional quantity of food with the same pro- 
portional quantity of labour, will also raise wages ; 
and therefore if money be of an unvarying value, 
both rent and wages will have a tendency to rise 
with the progress of wealth and population. 

But there is this essential difference between 
the rise of rent and the rise of wages. The rise 
An the money value of rent is accompanied by an 
incr-eased share of the produce ; not only is the 
landlord's money rent greater, but his corn rent 
also ; he will have more corn, and each defined 
measure of that corn will exchange for a greater 
quantity of all other goods which have not been 
raised in value. The fate of the labourer will be 
less happy : he will receive more money wages, 
it is true, but his corn wages will be reduced ; and 
not only his command of corn, but his general 
condition will be deteriorated, by his finding it 
more difficult to maintain the market rate of wages 
above their natural rate. While the price of corn 
rises 10 per cent., wages will always rise less than 
10 per cent., but rent will always rise more ; the 
condition of the labourer will generally decline, 
and that of the landlord will always be improved. 

When wheat was at 4?. per quarter, suppose the 
labourers wages to be 24/. per annum, or the value 



78 

of six quarters of wheat, and suppose half his 
wages to be expended on wheat, and the other 
half, or 121. y on other things. He would receive 

Z£4.14. ) f U.4.8. \ f 5.83 qrs. 

25.10. f when wheat ^ 4.10. / or the ^ 5.66 qrs. 

26.8. r was at j 4.16. ^ value of j 5.50 qrs. 

27.8.6 J ( 5.2.10 3 ( 5.33 qrs. 

He would receive these wages to enable him to 
live just as well, and no better, than before; for 
when corn was at 4^. per quarter, he would expend 
for three quarters of corn, at 4/. per qr. 1. 12 
and on other things .... 1^ 

24 
When wheat was 4Z. 4s. 8d., three quarters, 
which he and his family consumed, would cost 

him LlS.14 

other things not altered in price . . IS 



24.14 

When at 4:1. 10s., three quarters of wheat would 

cost 18.10 

and other things , . . . 12 



2ii.l0 
When at 4/. I6s., three qrs. of wheat Z.14.8 
Others things . . . . . 12 

26.8 
When at 5.2.101. three quarters of wheat would 

cost 1.15.S.6, 

Other things 12 

27.8.6 



79 

In proportion as corn became, dear^ he would re- 
ceive less corn wages, but his money wages would 
always increase, whilst his enjoyments on the 
above supposition, would be precisely the same. 
But as other commodities would be raised in price 
in proportion as raw produce entered into their 
composition, he would have more to pay for some 
of them. Although his tea, sugar, soap, candles, 
and house rent, would probably be no dearer, he 
would pay more for his bacon, cheese, butter, linen, 
shoes, and cloth ; and therefore, even with the 
above increase of wages, his situation would be 
comparatively worse. But it may be said that I 
have been considering the eifect of wages on price, 
on the supposition that gold, or the metal from 
which money is made, is the produce of the country 
in which wages varied ; and that the consequences 
which I have deduced agree little with the actual 
state of things, because gold is a metal of foreign 
production. The circumstance, however, of gold 
being a foreign production, will not invalidate the 
truth of the argument, because it may be shewn, 
that whether it were found at home, or were im- 
ported from abroad, the effects ultimately and in^ 
deed immediately would be the same. 

When wages rise, it is generally because the 
increase of wealth and capital have occasioned a 
new demand for labour, which will infallibly be 
attended with an increased production of commo- 
dities. To circulate these additional commodities, 
even at the same prices as before, more money is 
required, move of this foreign commodity from 
which money is made, ami which can only be ob- 



tained by importation. Whenever a commodity 
is required in greater abundance than before, its 
relative value rises comparatively with those com- 
modities vv^ith which its purchase is made. If 
more hats were wanted, their price would rise, and 
more gold would be given for them. If more 
gold were required, gold would rise, and hats 
would fall in price, as a greater quantity of hats 
and of all other things would then be necessary to 
purchase the same quantity of gold. But in the 
case supposed, to say that commodities will rise^ 
because wages rise, is to affirm a positive contra- 
diction ; for we first say that gold will rise in rela- 
tive value in consequence of demand, and secondly, 
that it will fall in relative value because prices 
will rise, two effects which are totally incompatible 
with each other. To say that commodities are 
raised in price, is the same thing as to say that 
money is lowered in relative value ; for it is by 
commodities that the relative value of gold is esti- 
mated. If then all commodities rose in price, 
gold could not come from abroad to purchase those 
dear commodities, but it would go from home to 
be employed with advantage in purchasing the 
comparatively cheaper foreign commodities. It 
appears then, that the rise of wages will not raise 
the prices of commodities, whether the metal from 
which money is made be produced at home or in 
a foreign country. All commodities cannot rise at 
the same time without an addition to the quantity 
of money. This addition could not be obtained 
at home, as we have already shewn ; nor could it 
be imported from abroad. To purchase any addi- 



81 

tional quantity of gold from abroad, commodities 
at home must be cheap, not dear. The importa- 
tion of gold, and a rise iii the price of all home- 
made commodities with which gold is purchased 
or paid for, are effects absolutely incompatible. 
The extensive use of paper money does not alter 
this question, for papdr money conforms, or ought, 
to conform to the value of gold, and therefore its 
value is influenced by such causes only as influence 
the value of that metal. 

These then are the laws by which wages are 
regulated, and by which the happiness of far the 
greatest part of every community is governed. 
Like all other contracts, wages should be left to 
the fair and free competition of the market, and 
should never be controled by the interference of 
the legislature. 

The clear and direct tendency of the poor laws, 
is in direct opposition to these obvious principles : 
it is not, as the legislature benevolently intended^ 
to amend the condition of the poor, but to deterio- 
rate the condition of both poor and rich ; instead 
of making the poor rich, they are calculated to 
make the rich poor ; and whilst the present laws 
are in force, it is quite in the • natural order of 
things that the fund for the maintenance of the 
poor should progressively increase, till it has ab- 
sorbed all the neat revenue of the country, or at 
least so much of it as the state shall leave to us, 
after satisfying its own never failing demands for 
the public expenditure.* 

* With Mr. Buchanan, in the following passage, if it refer& 
to temporarv states of misery, I so far agree, that " the great 
11 



83 

This pernicious tendency of these laws is tio 
longer a mystery, since it has been fully develop- 
ed by the able hand of Mr. Malthus ; and every 
friend to the poor must ardently wish for their 
abolition. Unfortunately however they have been 
so long established, and the habits of the poor 
have been so formed upon their operation, that to 
eradicate them with safety from our political sj s- 
tem requires the most cautious and skilful manage- 
ment. It is agreed by all who are most friendly 
to a repeal of these laws, that if it be desirable to 
prevent the most overwhelming distress to those 
for whose benefit they were erroneously enacted, 
their abolition should be ejffected by the most 
gradual steps. "^ 

It is a truth which admits not a doubt that the 
comforts and well being of the poor cannot be 
permanently secured without some regard on their 
part, or some eifort on the part of the legislature, 
to regulate the increase of their numbers, and to 
render less frequent among them early and im- 
provident marriages. The operation of the system 
of poor laws lias been directly contrary to tliis. 
They have rendered restraint superfluous, and 
have invited imprudence by offering- it a portion 
of the wages of prudence and industry. 

evil of the labourer's condition, is poverty, arising either 
tVom a scarcity of food or of work ; and in all countries, laws 
without number have been enacted for his relief. But there 
are miseries in the social state which legislation cannot relieve ; 
and it is useful therefore to know its limits, that we may not, 
by aiming at what is impracticable, miss the good which is 
really in our power." — Buchanan, page 61. 



The nature of the evil points out the remedy. 
By gradually contracting the sphere of the poor 
laws ; hy impressing on the poor the value of in- 
dependence, by teaching them that they must look 
not to systematic or casual charity, but to their 
own exertions for support, that prudence and fore- 
thought are neither unnecessary nor unprofitable 
virtues, we shall by degrees approach a sounder 
and more healthful state. 

No scheme for the amendment of the poor laws 
merits the least attention, which has not their aboli- 
tion for its ultimate object ; and he is the best 
friend to the poor, and to the cause of humanity, 
who can point out how this end can be attained 
with the most security, and at the same time with 
the least violence. It is not by raising in any 
manner different from the present, the fund from 
which the poor are supported, that the evil can be 
mitigated. It would not only be no improvement, 
but it would be an aggravation of the distress 
which we m ish to see removed, if the fund were 
increased in amount, or were levied according to 
some late proposals, as a general fund from the 
country at large. Tlie present mode of its collec- 
tion and application has served to miCigate its per- 
nicious effects. Each parish raises a separate 
fund for the support of its own poor. Hence it 
becomes an object of more interest and more 
practicability to keep the rates low, than if one 
general fund were raised for the relief of the poor 
of the whole kingdom. A parisl* is much more 
interested in an economical collection of the rate, 
and a sparing distribution of relief when the whole 



84 

saving will be for its own benefit, than if hundreds 
of other padshes were to partake of it. 

It is to this cause, that we must ascribe the fact 
of the poor laws not having yet absorbed all the 
net revenue of the country ; it is to the rigour 
with which they are applied, that we are indebted 
for their not having become overwhelmingly op- 
pressive. If by law every human being wanting 
support could be sure to obtain it, and obtain it iii 
such a degree as to make life tolerably comfortable, 
theory would lead us to expect that all other taxes 
together would be light compared with the single 
one of poor rates. The principle of gravitation 
is not more certain than the tendency of such laws 
to change wealth and power into misery and weak- 
ness ; to call away the exertions of labour from 
every object, except that of providing mere subsist- 
ence; to confound all intellectual distinction; to 
busy the mind continually in supplying the body's 
wants ; until at last all classes should be infected 
with the plague of universal poverty. Happily 
these laws have been in operation during a period 
of progressive prosperity, when the funds for the 
maintenance of labour have regularly increased, 
and when ah increase of population would be 
naturally called for. But if our progress should 
become more slow ; if we should attain the sation- 
ary state, from which I trust we are yet far distant, 
then will the pernicious nature of these laws be- 
come more manifest and alarming; and then too 
will their removal be obstructed by many additional 
difijiGultieg, 



CHAPTER V. 

On Profits. 

The profits of stock in different employments, 
having been siiewn to bear a proportion to each other, 
and to have a tendency to vary all in the same de- 
gree and in the same direction, it remains for us to 
consider what is the cause of the permanent varia- 
tions in the rate of profit, and the consequent per- 
manent alterations in the rate of interest. 

We have seen that the price* of corn is regulat- 
ed by the quantity of labour necessary to produce 
it, with that portion of capital which pays no rent. 
We have seen too that all manufactured commodi- 
ties rise and fall in price, in proportion as more or 
less labour becomes necessary to their production. 
Neither the farmer who cultivates that quality of 
land, which regulates price, nor the manufacturer, 
who manufactures goods, sacrifice any portion of 
the produce for rent. The whole value of their 
commodities is divided into tv/o portions only : one 
constitutes 'the profits of stock, the other the wages 
of labour. 

* The reader is desired to bear in mind, that for the pur- 
pose of making the subject more clear, I consider money to be 
invariable in value, and therefore every variation of price to 
be referable to an alteration in the value of the commoditj. 



8(5 

Supposing coru and manufactured goods always 
to sell at the same pricCj profits would be high or 
low in proportion as wages were low or high. But 
suppose coru to rise in price because more labour 
is necessary to produce it; that cause will not raise 
the price of manufactured goods in the production 
of which no additional quantity of labour is re- 
quired. If then wages continue the same, profits 
would remain the same ; but if, as is absolutely 
certain, w^ages should rise with the rise of corn, 
then profits would necessarily fall. 

If a manufacturer always sold his goods for the 
same money, for 1000^. for example, his profits 
AYOuld depend on the price of «the labour necessary 
to manufacture those goods. His profits would be 
less when wages amounted to 800L than when he 
paid only 600/. In proportion then as wages rose, 
would profits fall. But if the price of raw pro- 
duce would increase, it may be asked, whethev the 
farmer at least would not have the same rate of 
profits, although he should pay an additional price 
for wages? Certaiul}' not : for he will not only 
have to pay, iu common with the manufacturer, an 
increase of wages to each labourer he employs, but 
he will be obliged either to pay rent, or to employ 
an additional number of labourers to obtain the 
same produce ; and the rise in the price of raw pro- 
duce will be proportioned only to that rent, or that 
additional number, and will not compensate him 
for the rise of wages. 

If both the manufacturer and farmer employed 
ten men, on wages rising from 34?. to 251. per au- 



nuM, per man, the Hvliole sum paid by each would 
be S50/. instead of 240/. This is, however^ the 
whole 0'ldition that would be paid by the manu- 
facturer to obtain the same quantity of commodi- 
ties ; but the farmer on new land would probably 
be obliged to employ an additional man, and there- 
fore to pay an additional sum of %5l. for wages ; 
and the farmer on the old land would be obliged 
to pay precisely the same additional sum of 2aZ. 
for rent ; without which additional labour, corn 
would not have risen. One will therefore have 
to pay S75/« for wages alone, the other, for wages 
and rent together ; each ^5l. more than the manu- 
facturer: for this latter 25/. they are compensated 
by the addition to the price of raw produce, and 
therefore their profits still conform to the profits of 
the manufacturer. As this proposition is impor- 
tant, I will endeavour still further to elucidate it. 

We have shewn that in early stages of so- 
ciety, both the landlord's and the labourer's share 
of the value of the produce of the earth, would be 
but small ; and that it would increase in proportion 
to the progress of wealth, and the diflBculty of pro- 
curing food. We have shewn too, tha); although 
the value of the labourer's portion will be increas- 
ed by the high value of food, his real share will be 
diminished ; whilst that of the landlord will not 
only be raised in value, but will also be increased 
in quantity. 

The remaining quantity of the produce of the 
land, after the landlord and labourer are paid, ne- 
cessarily belongs to the farmer, and constitutes the 



88 • 

profits of his stock. But it may be alleged, that 
though as society advances, his proportion of the 
whole produce will be diminished, yet as it will 
rise in value, he, as well as the landlord and la- 
bourer, may, notwithstanding, receive a greater 
value. • ^ 

it may be said for example, that when corn rose 
from 4L to 10/., the 180 quarters obtained from the 
best land would sell for 1800/. instead of 7^0/. ; and 
therefore, though the landlord and labourer be 
proved to have a greater value for rent and vvages, 
still the value of the fai'mer's profit might also be 
augmented. This however is impossible, as I 
shall now endeavour to shew. 

In the first place, the price of corn would rise 
only in proportion to the increased difficulty of 
growing it on land of a worse quality. 

It has been already remarked, that if the labour 
of ten men will, on land of a certain quality, ob- 
tain 180 quarters of wheat, and its value be 4/. per 
quarter, or 7^0/. ; and if the labour of ten addi- 
tional men, will on the same or any other land, 
produce only 170 quarters in addition, wheat 
would rise from 4/. to 4/. 4s. 8d. ; for I70 : 180 : : 
4/. : 4/. 4s. 8d. In other words, as for the produc- 
tion of 170 quarters, the labour of ten men is ne- 
cessary, in the one case, and only that of 9.44 in the 
other, the rise would be as 9.44 to 10, or as 4/. to 4/. 
4s. 8^. In the same manner it might be shewn, 
that if the labour of ten additional men would only 
produce IGO quarters, the price would further rise 
to 4/. lOs. : if 150 to 4/. 16s. &c. &c. 



89 

But when 180 quarters were produced on 
the land paying no rent, and its price was 
4/. per quarter, it sold for . . . L^SO 
And when 170 quarters were produced on 
the land paying no rent, and the price 
rose to 4Z. 4s. 8d. it still sold for . 7S0 

So, 160 quarters at 4Z. 10s. produce . . 7^0 
And 150 quarters at 4Z. I6s. produce the 

same sum of . . . . . 7^Q 
Now it is evident, that if out of these equal va- 
lues, the farmer is at one time obliged to pay wa- 
ges regulated by the price of wheat at 4^., and at 
other times at higher prices, the rate of his pro- 
fits will diminish in proportion to the rise in the 
price of corn. 

In this case, therefore, I think it is clearly de- 
monstrated that a rise in the price of corn, which 
increases the money wages of the labourer, dimi- 
nishes the money value of the farmer's profits. 

But the case of the farmer of the old and better 
land will be in no way diiferent; he also will have 
increased wages to pay, and will never retain more 
of the value of the produce, however high may be 
its price, than 7^0?' to be divided between himself 
and his always equal number of labourers ; in pro- 
portion therefore as they get more, he must retain 
less. 

When the price of corn was at 4/., the whole 
180 quarters belonged to the cultivator, and he sold 
it for 7S0Z. When corn rose to 4Z, 4s. Sd. he was 
obliged to pay the value of ten quarters out of his 
180 for rent, consequently the remaining 170 yield- 
ed him no more than 7^01. ; when it rose further to 
IS 



90 

4il. iOs. he paid twenty quarters, or their value, fot 
rent, and consequently only retained 160 quarters, 
which yielded the same sum of 7^0Z. 

It will be seen then, that whatever rise may take 
place in the price of corn, in consequence of the 
necessity of employing more labour and capital to 
obtain a given additional quantity of produce, such 
rise will always be equalled in value by the addi- 
tional rent, or additional labour employed ; so that 
whether corn sells for 4Z., 4L 10s., or 5l. 2s. iOd, 
the farmer will obtain for that which remains- to 
him, after paying rent, the same real value. Thus 
we see, that whether the produce belonging to the 
farmer be 180, I70, 160, or 150 quarters, he al- 
ways obtains the same sum of 7^0/. for it ; the 
price increasing in an inverse proportion to the 
quantity. 

Rent then, it appears, always falls on the con- 
sumer, and never on the farmer ; for if the pro- 
duce of his farm sliould uniformly be 180 quarters,, 
with the rise of price, lie would retain the value 
of a less quantity for himself, and give the value 
of a larger quantity to his landlord ; but the deduc- 
tion would be such as to leave him always the 
same sum of 7^0/. 

• It will be seen too that, in all cases, the same 
sura of 72OZ. must be divided between wages and 
profits. If the value of the raw produce from the 
land exceed this value, it belongs to rent, whatever 
may be its amount. If there be no excess, there 
will be no rent. WhetJier wages or profits rise or 
fall, it is this sum of 7^0/. from which they must 
both be. provided. On the one hand, profits can 



91 

never vise so high as to absorb so much of this 7^Qh 
that enough will not be left to furnish the labour- 
ers with absolute necessaries ; on the other hand;, 
wages can never rise so high as to leave no portion 
of this sum for profits. 

Thus in every case, agricultural, as well as ma- 
nufacturing profits are lowered by a rise in the price 
of raw produce, if it be accompanied by a rise of 
wages. ^ If the farmer gets no additional value 
for the corn which remains to him after paying rent, 
if the manufacturer gets no additional value for the 
goods which he manufactures, and if both are obli- 
ged to pay a greater value in wages, can any point 
be more clearly established than that profits must 
fall, with a rise of wages? >, 

The farmer then, although he pays no part of 
his landlord's rent, that being always regulated by 
the price of produce, and invariably falling on the 
consumers, has however a very decided interest in 
keeping rent low, or rather keeping the natiiral price 
of produce low. As a consumer of raw produce, and 
of those things into which raw produce enters as a 
component part, he will in common with all other 
consumers, be interested in keeping the price low. 
But he is most materially concerned with the high 
^price of corn as it affects wages. With every rise in 
the price of corn, he will have to pay out of an equal 

* The reader is aware, that we are leaving out of qur consi- 
deration the accidental variations arising from bad ^nd good 
seasons, or from the demand increasing or diminishing by 
any sudden effect on the state of population. We are speak- 
ing of the natural and constant, not of thg accidental and fluc- 
tuating price of corn. 



93 

aiidiinv.arying sum of 7S0/., an additional sum foi 
wages to the ten men whom he is supposed constantly 
to employ. We have seen, in treating on wages, that 
.they invariably rise with the rise in the price of 
Taw produce. On a basis assumed for the purpose 
of calculation, page 78, it will be seen that if when 
wheat is at 4/. per quarter, wages should be 24?,' 
per annum. 



^ 
^ 



r4 






s, 
4 

10 

16 






wages would be 



£ loj 




Now, of the unvarying fund t)f 720/, to be 
distributed between labourers and farmers, 



I. s, d.. 

g-S f4 
'£•2 |4 4 8 
a S<^ 4 10 
^^ 4 16 



'^^ U 





2 10 



I. s. 

fZ40 0" 

il \9A7 



u Si 



I. s. d, 
f480 



|.| I" 473 -0 



> %l <9.55 0l> ^ I <|465 
^3 ! 264 J J ii ( 456 



L2r4 5j 



* The 180 quarters of corn would be divided in the fol- 
lowing proportions between landlords, farmers, and labourers, 
with the above-named variations in the value of corn. 



Price per qr. 


Rent. 


Profit. 


Wages, 


Tota 


I. s. d. 


In Wheat. 


In Wheat, 


In Wheat. 


4 


None. 


120 qrs. 


60 qrs. 


- 


4 4 8 


10 qrs. 


111.7 


58,3 




~4 10 


20 


103,4 


56.6 


>180 


4 16 


30 


95 


55 




5 .3 10 


40 


86.7 


53.3 





93 

And supposing that the original capital of the' 
farmer was 3000/., the profits of his stock being 
in the first instance 480/., would be at the rate of 
16 per cent. When his profits fell to 4-73/. they 
would be at the rate of 15.7 per cent. 

465/ 15.5 

466/. ... . . 15,3 

445/ 14.8 

But the rate of profits will fall still more, be- 
cause the capital of the farmer, it must be recollect- 
ed, consists in a great measure of raw produce, 
such as his corn and hay-ricks, his unthreshed 
wheat and barley, his horses and cows, which 
would all rise in price in consequence of the rise 
of produce. His absolute profits would fall from 
480/. to 445/. 15s.; but if from the causfe which 
I have just stated, his capital should rise from 
3000/. to 3200/. the rate of his profits would, when 
^orn was at 5/. 2s. iOd., be under 14 per cent. 

If a manufacturer had also employed 3000/. in 
his business, he would be obliged in consequence 
of the rise of wages, to increase his capital, in 
order to be enabled to carry on the same business. 
If his commodities sold before for 7^0/. they would 

and, under the same circumstances, money rent, wages, and 
profit, would be as follows : 



Pr 


ice per qr. Rent. 


Profit. 


Wages. 


Total. 


I, 


s. d. I. s, d. 


* I. .s. d. 


I. s. d. 


I. s. d. 


4 


None 


480 


240 


720 


4 


4 8 42 7 6 


473 


247 


762 7 6 


4 


10 90 


465 


255 


810 


4 


16 144 


456 0. 


264 0,0,. 


864 


5 


2 10 205 13 4 


■445 '15.0 


-274:;5;;0/. 


.'ms IS 4 



94 

I coutiniie to sell at the same price ; l)ut the wages 
of labour, which were before 24:01. would rise 
when corn was at 51. 2s, iOd. to S74/. 5s. In the 
first case he would have a balance of 480?. as 
profit on 3000L, in the second he would have a 
profit only of 445Z. i5s. on an increased capital, 
and therefore his profits would conform to the 
altered rate of those of the farmer. 

There are few commodities which are not more 
or less affected in their price by the rise of raw 
produce, because some raw material from the land ' 
enters into the composition of most commodities. 
Cotton goods, linen, and cloth, will all rise in 
price with the rise of wheat ; but they rise on ac- 
count of the greater quantity of labour expended 
on the raw material from which they are made, and 
not because more was paid by the manufacturer 
to the labourers whom he employed on those com- 
modities. . * 
In all cases, commodities rise because more la- 
bour is expended on them, and not because the la- 
bour which is expended on them is at a higher va- 
lue. Articles of jewelry, of iron, of plate, and 
of copper, would not rise, because none of the raw 
produce from the surface of the earth enters into 
their composition. 

It may be said that I have taken it for granted, 
that money wages would rise with a rise in the 
price of raw produce, but that this is by no means 
a necessary consequence, as the labourer may be 
Contented with fewer enjoyments. It is true that 
Ihe wages of labour may previously have been at a 
high level, and that they may bear some reduction. 



95 

If so/ the fall of profits will be checked ; but it is 
impossible to conceive that the money price of wa-- 
ges should fall, or remain stationary with a gradu- 
ally increasing price of necessaries ; and therefore 
i*t,may be taken for granted that, un|}er Ordinary 
circumstances, no permanent risfc takes place in 
the price of necessaries, without occasioning, or 
having been preceded by a rise in wages. 

The effects produced on profits, would have been 
the same, or nearly the same, if there had been 
any rise in the price of those other necessaries, be- 
sides food, on which the wages of labour are ex- 
pended. The necessity which the labourer would 
be under of paying an increased price for such ne- 
cessaries, would oblige him to demand more wages ; 
jind whatever increases wages, necessarily reduces 
profits. But suppose the price of silks, velvets, 
furniture, and any other commodities, not required 
by the labourer, to rise in consequence of more la- 
bour being expended on them, would not that affect 
profit? Certainly not: for nothing can affect profits 
but a rise in wages ; silks and velvets are not con- 
sumed by the labourer, and therefore cannot raise 
wages. . ' 

It is to be understood that I am speaking of pro- 
fits generally. I have already remarked that the 
market price of a commodity may exceed its natu- 
ral or necessary price, as it may be produced in 
less abundance than the new demand for it requires. 
This however is but a temporary effect. The high 
profits on capital employed in producing that com- 
modity will naturally attract capital to that trade : 
and as soon as the requisite funds are supplied. 



96 

and the quantity of the commodity is duly increased, 
its price will fall^ and the profits of the trade will 
conform, to the general level. A fall in the general 
rate of profits is by no means incompatible with a 
partial rise ^ profits in particular employments. It 
is through. the inequality of profits, that capital is 
moved from one employment to another. Whilst 
then general profits are falling, and gradually set- 
tling at a lower level in consequence of the rise of 
wages, and the increasing diificulty of supplying 
the increasing population with necessaries, the pro- 
fits of the farmer, may, for an interval of some lit- 
tle duration, be above the former level. An ex- 
traordinary stimulus may be also given for a cer- 
tain time, to a particular branch of foreign and 
colonial trade ; but the admission of this fact by 
no means invalidates the theory, that profits de- 
pend on high or low wages, wages on the price of 
necessaries, and the price of necessaries chiefly 
on the price of food, because all other requisites 
may be increased almost without limit. 

It should be recollected that prices always vary in 
the market, and in the first instance, through the 
comparative state of demand and supply. Although 
cloth could be furnished at 4s. per yard, and give 
the usual profits of stock, it may rise to 60 or 80s, 
from a general change of fashion, or from any 
other cause which should suddenly and unexpect- 
edly increase tlie demand, or diminish the supply 
of it. The makers of cloth will for a time have 
unusual profits, but capital will naturally flow to 
that manufacture, till the supply and demand are 
a2;ain at tlieir fair level, when the price of cloth 



97 

will again sink to 4tOs., its natural or necessary 
price. In the same manner, with every increased 
demand for corn, it may rise so high as to afford 
more than the general profits to the farmer. If 
there be plenty of fertile land, the price of corn 
will again fall to its former standard, after the 
requisite quantity of capital has been employed 
in producing it, and profits will be as before; but 
if there be not plenty of fertile land, if, to produce 
this additional quantity, more than the usual quan- 
tity of capital and labour be required, corn will 
not fall to its former level. Its natural price will 
be raised, and the farmer, instead of obtaining 
permanently larger profits, will find himself obliged 
to be satisfied with the diminished rate which is the 
inevitable consequence of the rise of wages, pro- 
duced by the rise of necessaries. 

The natural tendency of profits then is to fall ; 
for, in the progress of society and wealth, the 
additional quantity of food requiretl is obtained 
by the sacrifice of more and more labour. This 
tendency, this gravitation as it were of profits, is 
happily checked at repeated intervals by the im- 
provements in machinery, connected with the pro- 
duction of necessaries, as well as by discoveries 
in the science of agriculture which enable us to 
relinquish a portion of labour before required, and 
therefore to lower the price of the prime nec|Bssary 
of the labourer. The rise in the price of n^-cessa- 
ries and in the wages of labour is however limited; 
for as soon as wages should be equal (as in the 
case formerly stated) to 7^0/. the whole receipts 

of the farmer, there must be an end of accumula- 
18 



98 

tion ; for no capital can then yield any profit what- 
ever, and no additional labour can be demanded, 
and consequently population will have reached its 
highest point. Long indeed before this period, 
the very low rate of profits will have arrested all 
accumulation, and almost the whole produce of the 
country after paying the labourers, will be the 
property of the owners of land and the receivers 
of tithes and taxes. 

Thus, taking the former very imperfect basis as 
the grounds of my calculation, it would appear 
that when corn was at 201. per quarter, the whole 
net income of the country would belong to the 
landlords, for then the same quantity of labour 
that was originally necessary to produce 180 quar- 
ters, would be necessary to produce 36 ; since 
20?, : 4/. : : 180 : SQ. The farmer then, who 
originally produced 180 quarters, (if any such 
there were, for the old and new capital employed 
on the land would be so blended, that it could in 
no way be distinguished,) would sell the 

180 qrs. at 20Z. per qr. or Z.S600 

,, , f^.. ^ to landlord for rent, beins the clif-> _„„« 
the value of ] 44 qrs. ^ - ■ ^ ,' °-^ ^2880 

C rerence between bo and 180 qrs. j 

S6 qrs. 720 

the value of 56 qvs. to labourers ten in number . . 720 

leaving nothing whatever for profit. 

At this price of 20/. the labourers would continue to consume 

three quarters each per annum or . . /.60 
And on other commodities they would expend 12 

72 for each> 
— labourer .5. 
^nd therefore ten labourers would cost 720/1. per annum. 



99 

In all these calculations I have been desirous only 
to elucidate the principle, and it is scarcely neces- 
sary to observe, tliat ray whole basis is assumed at 
random, and merely for the purpose of exemplifi- 
cation. The results, though different in degree, 
would have been the same in principle, however 
accurately I might have set out in stating the dif- 
ference in the number of labourers necessary to 
obtain the successive quantities of corn required 
by an increasing population, the quantity consumed 
by the labourer's family, &c. &c. My object has 
been to simplify the subject, and I have therefore . 
made no allowance for the increasing price of the 
other necessaries, besides food, of the labourer^ 
an increase which would be the consequence of 
the increased value of the raw material from which 
they are made, and which would of course farther 
increase wages, and lower profits. 

I have already said, that long before this state 
of prices was become permanent, there wouhl be 
no motive for accumulation ; for no one accumu- 
lates but with a view to make his accumulation 
productive, and it is only when so employed that 
it operates on profits. Without a motive there 
could be no accumulation, and consequently such 
a state of prices never could take place. The 
farmer and manufacturer can no more live without 
profit, than the labourer without wages. Their 
motive for accumulation will diminish with every 
diminution of profit, and will cease altogether 
when their profits are so low as not to afford them 
an adequate compensation for their trouble, and 



100 

the risk which they must necessarily encounter in 
employing their capital productively. 

I must again observe, that the rate of profits 
would fall much more rapidly than I have estimat- 
ed in my calculation : for the value of the produce 
being what I have stated it under the circumstances 
supposed j the value of the farmer's stock would be 
greatly increased from its necessarily consisting of 
many of the commodities which had risen in value. 
Before corn could rise from 4/. to i2l. his capital 
would probably be doubled in exchangeable value, 
and be worth 6000?. instead of 3000/. If then 
his profit were 180/., or 6 per cent, on his original 
capital, profits would not at that time be really at 
a higher rate than 3 per cent. ; for 6000/. at 3 per 
cent, gives 180/. ; and on those terras only could a 
new farmer with 6000/. money in his pocket enter 
into the farming business. 

Many trades would derive some advantage, more 
or less, from the same source. The brewer, the 
distiller, the clothier, the linen manufacturer, would 
be partly compensated for the diminution of their 
profits, by the rise in the value of their stock of 
raw and finished materials ; but a manufacturer of 
hard ware, of jewelry, and of many other commo- 
dities, as well as those whose capitals uniformly 
consisted of money, would be subject to the whole 
fall in the rate of profits, without any compensation 
whatever. 

We should also expect that, however the rate of 
the profits of stock might diminish in consequence 
of the accumulation of capital on the laud, and the 



101 

rise of wages, yet the aggregate amount of profits 
would increase. Thus supposing that, with repeat- 
ed accumulations of 100,000?., the rate of profit 
should fall from 20 to 19? to 18, to 47 p^r cent., a 
constantly diminishing rate, we should expect that 
the whole amount of profits received by those suc- 
cessive owners of capital would be always progres- 
sive : that it would be greater when the capital was 
200,000/., than when 100,000?. ; still greater when 
300,000?. ; and so on, increasing, though at a dimi- 
nishing rate, with every increase of capital. This 
progression however, is only true for a certain time : 
thus 19 per cent, on 200,000 is more than 20 on 
100,000?. ; again, 18 per cent, on 300,000 is more 
than 19 per cent, on 200,000?. ; but after capital 
has accumulated to a large amount, and profits have 
fallen, the further accumulation diminishes the ag- 
gregate of profits. Thus suppose the accumula- 
tion should be 1,000,000?., and the profits 7 per 
cent, the whole amount of profits will be 70,000?. ; 
now if an addition of 100,000?. capital be made 
to the million, and profits should fall to 6 per cent., 
66,000?. or a diminution of 4000?. will be received 
by the owners of stock, although the whole amount 
of stock will be increased from 1,000,000?. to 
1,100,000?. 

There can, however, be no accumulation of capi- 
tal, so long as stock yields any profit at all, with- 
out its yielding not only an increase of produce, 
but an increase of value. By employing 100,000?. 
additional capital, no part of the former capital will 
be rendered less productive. The produce of the 



land and labour of the country must increase, and 
its value will be raised, not only by the value of the 
a'ddition which is made to the former quantity of 
productions, but. by the new value which is given 
to the whole produce of the land, by the increased 
difaculty of producing the last portion of it, wliich 
new value always goes to rent. When the accu- 
mulation of ca[)ital, however, becomes very great, 
Botwiihstanding this increased value, it will be so 
distributed that a less value than before will be ap- 
propriated to profits, while that which is devoted to 
rent and wages will be increased. Thus with 
successive additions of 100,000Z. to capital, with 
a fall in the rate of profits, from 20 to 19vto 18, 
to 17 ppr cent. &c. the productions annually ob- 
tained will increase in quantity, and be of more 
than the whole additional value, which the addi- 
tional capital is calculated to produce. From 
30,OOOZ. it will rise to more than 39,000/. and then 
to more than 57,000/., and when the capital em- 
ployed is a million, as we before supposed, if 
100,000/. more be added to it, and the aggregate 
of profits is actually lov/cr than before, more than 
6000/. will nevertheless be added to the revenue of 
the country, but it will be to the revenue of the 
landlords ; they will obtain more than the addi- 
tional produce, and will from their situation be 
enabled to encroach even on the former gains of 
the capitalist. Thus, suppose the price of corn to 
be 4/. per quarter, and that therefore, as we before 
calculated, of every 720/. remaining to the farmer 
afler pnymeut of his rent, 480/. were retained by 



103 

iiini, and 240^ were paid to his labourers ; when 
the price rose to 6/. per quarter, he would be obliged 
to pay his labourers SOOl. and retain only 4^0/. 
for profits. Now if the capital employed were so 
large as to yield a hundred thousand times '^201. or 
72,000,000/. the .aggregate of profits, would be 
48,000,000/. when wheat was at 4/. per quarter ; 
and if by employing a larger capital, 105,000 
times 720/. were obtained when wheat was at 61. 
or 79?600,000/., profits would actually fall from 
48,000,000/. to 44,100,000/. or 105,000 times 
420/., and wages would rise from 24,000,000/. to 
31,500,000/. Wages would rise because more la- 
bourers would be employed, in proportion to capi- 
tal ; and each labourer would receive more money 
wages; but the condition of the labourer, as we 
have already shewn, would be worse, inasmuch as 
he would be able to command a less quantity of 
the produce of the country. The only real gain- 
ers would be the landlords ; they would receive 
higher rents, first, because produce would be of a 
higher value, and secondly, because they would 
have a greatly increased proportion. 

Although a greater value is produced, a greater 
proportion of what remains of that value, after 
paying rent, is consumed by the producers, and it 
is this, and this alone, which regulates profits. 
Whilst the land yields abundantly, wages may 
temporarily rise, and the producers may consume 
more than their accustomed proportion ; but the 
stimulus which will thus be given to population, 
will speedily reduce the labourers to their usual 



104 

consumption. But when poor lands are taken into 
cultivation, or when more capital and labour are 
expended on the old land, with a less return of 
produce, the effect must be permanent. A greater 
proportion of that part of the produce which re- 
mains to be divided, after paying rent, between the 
owners of stock and the labourers, will be appor- 
tioned to the latter. Each man may, and proba- 
bly will, have a less absolute quantity ; but as 
more labourers are employed in proportion to the 
whole produce retained by the farmer, the value 
of a greater proportion of the whole produce will 
be absorbed by wages, and consequently the value 
of a smaller proportion will be devoted to profits. 
This will necessarily be rendered permanent by 
the laws of nature, which have limited the produc- 
tive powers of the land. 

Thus we again arrive at the same conclusion 
which we have before attempted to establish : — 
that in all countries, and at all times, profits de- 
pend on the quantity of labour requisite to provide 
necessaries for the labourers, on that land or with 
that capital which yields no rent. The effects then 
of accumulation will be different in different coun- 
tries, and will depend chiefly on the fertility of the 
land. However extensive a country may be where 
the land is of a poor quality, and where the im- 
portation of food is prohibited, the most moderate 
accumulations of capital will be attended witir 
great reductions in the rate of profit, and a rapid 
rise in rent; and on the contrary a small but fer- 
tile country, particularly if it freely permits the 



103 

importation of food, may accumulate a large stock 
of capital without any great diminution in the rate 
of profits, or any great increase in the rent of land. 
In the chapter on wages, we have endeavoured to 
shew that the money price of commodities would 
not be raised by a rise of wages, either on the sup- 
position that gold, the standard of money, was the 
produce if this country, or that it was imported 
from abroad. But if it were otherwise, if the 
prices of commodities were permanently raised by 
high wages, the proposition would not be less true, 
which asserts that high wages invariably affect the 
employers of labour, by depriving them of a por- 
tion of their real profits. Supposing the hatter, 
the hosier, and the shoe-maker, eacli paid lOZ. more 
wages in the manufacture of a particular quantity 
of their commodities, and that the price of hats, 
stockings, and shoes, rose by a sum sufficient to 
repay the manufacturer the lOZ. ; their situation 
would be no better than if no such ris€ took place. 
If the hosier sold his stockings for 110/. instead of 
100/., his profits would be precisely the same mo- 
ney amount as before ; but as he would obtain in 
exchange for this equal sum, one tenth less of liats, 
shoes, and every other commodity, and as he could 
with his former amount of savings employ fewer 
labourers at the increased wages, and purchase 
fev/er raw materials at the increased prices, he 
would be in no better situation than if his money 
profits had been really diminished in amount, and 
every thing had remained at its former price. Thus 
then I have endeavored to shew, first, that a rise of 
li 



106 

wages would not raise the price of commodities^ but 
would invariably lower profits ; and secondly, that 
if the prices of commodities could be raised, still 
the effect on profits would be the same ; and that in 
fact the value of the medium only in which prices 
and profits are estimated would be lowered. 



I 



CHAPTER VI. 

On Foreign Trade. 

ISTo ^xtensioaofforeigiLlrade will immediately 
increase theamoimt of value in a country, althougli 
it wilL-5:eiy„piQwerMly contribute to increase the 
mass of coxmnaditiea, and therefore tlie sum of 
enjoyments. As the value of all foreign goods is 
measured by the quantity of the produce of our 
land and labour, which is given in exchange for 
them, we should have no greater value, if by the 
discovery of new markets, we obtained double the 
quantity of foreign goods in exchange for a given 
quantity of ours. If by the purchase of English 
goods to the amount of 1000/. a merchant can ob- 
tain a quantity of foreign goods, which he can 
sell in the English market for 1200Z., he will 
obtain SO per cent, profit by such an employment 
of his capital ; but neither his gains, nor the value 
of the commodities imported, will be increased or 
diminished by the greater or smaller quantity of 
foreign goods obtained. Whether, for example, 
he imports twenty-five or fifty pipes of wine, his 
interest can be no way affected, if at one time the 
twenty-five pipes, and at another the fifty pipes, 
equally sell for ISOOZ. In either case his profit 



108 

will be limited to ^001., or 20 per cent, on his 
capital ; and in cither case the same value will be 
imported into England. If the fifty pipes sold for 
more than ISOOZ., the profits of this individual 
merchant would exceed the general rate of profits, 
and capital would naturally flow into this advan- 
tageous trade, till the fall of the price of wine had 
brought every thing to the former level. 

It has indeed been contended, that the great 
profits which are sometimes made by particular 
merchants in foreign trade, will elevate the general 
rate of profits in the country, and that the abstrac- 
tion of capital from other employments, to partake 
of the new and beneficial foreign commerce, will 
raise prices generally, and thereby increase profits. 
It has been said, by high authority, that less capital 
being necessarily devoted to the growth of corn, 
to the manufacture of cloth, hats, shoes, &c. while 
the demand continues the same, the price of these 
commodities will be so increased, that the farmer, 
hatter, clothier, and shoe -maker, will have an in- 
crease of profits, as well as the foreign merchant.* 

They who hold this argument agree with me, 
that the profits of different employments have a 
tendency to conform to one another ; to advance 
and recede together. Our variance consists in this : 
They contend, that the equality of profits will be 
brought about by the general rise of profits ; and 
1 am of opinion, that the profits of the favoured 
trade will speedily subside to the general level. 

See Adam Smith, book 1, chap 9. 



109 

For, first, I deny that less capital will necessa- 
rily be devoted to the growth of corn, to the manu- 
facture of cloth, hats, shoes, &c., unless the demand 
for these commodities be diminished ; and if so, 
their price will not rise. In the purchase of fo- 
reign commodities, either the same, a larger, or a 
less portion of the produce of the land and labour 
of England will be employed. If the same portion 
be so employed, then will the same demand exist 
for cloth, shoes, corn, and hats, as before, and the 
same portion of capital will be devoted to their pro- 
duction. If, in consequence of the price of fo- 
reign commodities being cheaper, a less portion of 
the annual produce of the land and labour of Eng- 
land is employed in the purchase of foreign com- 
modities, more will remain for the purchase of 
other things. If there be a greater demand for 
hats, shoes, corn, &c. than before, which there may 
be, the consumers of foreign commodities having an 
additional portion of their revenue disposable, the 
capital is also disposable with which the greater 
value of foreign commodities was before purchased ; 
so that with the increased demand for corn, shoes, 
&c. there exists also the means of procuring an in- 
creased supply, and therefore neither prices nor 
profits can permanently rise. If more of the pro- 
duce of the land and labour of England be em- 
ployed in the purchase of foreign commodities, less 
can be employed in the purchase of other things, 
and therefore fewer hats, shoes, &c. will be requir- 
ed. At the same time that capital is liberated from 
the production of shoes, hats, &c. more must be em- 



110 

ployed m manufacturing those commodities with 
which foreign commodities are purchased ; and con- 
sequently in all cases the demand for foreign and 
home commodities together, as far as regards value, 
is limited by the revenue and capital of the country. 
If one increases, the other must diminish. If the 
importation of wine, given in exchange for the same 
quantity of English commodities be doubled, the 
people of England can either consume double the 
quantity of wine that they did before, or the same 
quantity of wine and a greater quantity of English 
commodities. If my revenue had been 1000/. 
with which I purchased annually one pipe of wine 
for 100^ and a certain quantity of English commo- 
dities for 900/. when wine fell to 501. per pipe, I 
might lay out the 501. saved, either in the purchase 
of an additional pipe of wine, or in the purchase of 
more English commodities. If I bought more wine, 
and every wine-drinker did the same, the foreign 
trade would not be in the least disturbed ; the same 
quantity of English commodities would be export- 
ed in exchange for wine, and we should receive 
double the quantity, though not double the value 
of wine. But if I, and others contented ourselves 
with the same quantity of wine as before, fewer 
English commodities would be exported, and the 
wine-drinkers might either consume the commodi- 
ties which were before exported, or any others for 
which they had an inclination. The capital re- 
quired for their production would be supplied by 
the capital liberated from the foreign trade. 

There are two ways in which capital may be 
accumulated : it may be saved either in consequence 



Ill 

of increased revenue, or of diminished consump- 
tion. If my profits are raised from 1000?. to 1200Z. 
while my expenditure continues the same, I accu- 
mulate annually SOO/. more than I did before. It! 
I save 200/. out of my expenditure while my pro- 
fits continue the same, the same eifect will be pro- 
duced ; 200/. per annum will be added to my 
capital. The merchant who imported wine after 
profits had been raised from 20 per cent, to 40 per 
cent., instead of purchasing his English goods for 
1000/., must purchase them for 857/. 2s. iOd., still 
selling the wine which he imports in return for 
those goods for 1200/ ; or, if he continued to pur- 
chase his English goods for 1000/., must raise the 
price of his wine to 1400/. ; he would thus obtain 
40 instead of 20 per cent, profit on his capital ; but 
if, in consequence of the cheapness of all the com- 
modities on which his revenue was expended, he 
and all other consumers could save the value of 200/. 
out of every 1000/. they before expended, they 
would more effectually add to the real wealth of 
the country ; in one case, the savings would be 
made in consequence of an increase of revenue, in 
the other in consequence of diminished expendi- 
ture. 

If, by the introduction of machinery, the gene- 
rality of the commodities on which revenue was 
expended fell 20 per cent, in value, I should be 
enabled to save as effectually as if my revenue had 
been raised 20 per cent. : but in one case the rate 
of profits is stationary, in the other it is raised 20 
per cent.-— If, by the introduction of cheap foreign 
goods, I can save 20 per cent, from my expendi- 



113 

ture, the effect will be precisely the same as if 
machinery had lowered the expense of their pro- 
duction, but profits would not be raised. 

It is not, therefore, in consequence of the ex- 
tension of the market that the rate of profits is 
raised, although such extension may be equally 
eflRcacious in increasing the mass of commodities^ 
and may thereby enable us to augment the funds 
destined for the maintenance of labour, and the" 
materials on which labour may be employed. It 
is quite as important to the happiness of mankind, 
that our enjoyments should be increased by the 
better distribution of labour, by each country pro- 
ducing those commodities for which by its situation, 
its climate, and its other natural or artificial advan- 
tages it is adapted, and by their exchanging them 
for the commodities of other countries, as that they 
should be augmented by a rise in the rate of pro- 
fits. 

It has been my endeavour to shew throughout 
this work, that the rate of profits can never be in- 
creased but by a fall in wages, and that there can 
be no permanent fall of wages but in consequence 
of a fall of the necessaries on which wages are ex- 
pended. If, therefore, by the extension of foreign 
trade, or by improvements in machinery, the food 
and necessaries of the labourer can be brought to 
market at a reduced price, profits will rise. If, in- 
stead of growing our own corn, or manufacturing 
the clothing and other necessaries of the labourer, 
we discover a new market from which we can sup- 
ply ourselves Avith these commodities at a chea,per 
price, wages will fall and profits rise ; but if the 



113 

eoromodities obtained at a cheaper rate, by the ex- 
tension of foreign commerce, or by the improvement 
of machinery, be exclusively the commodities con- 
sumed by the rich, no alteration will take place in 
the rate of profits. The rate of wages would not 
be affected, although wine, velvets, silks, and other 
expensive commodities, should fall 50 per cent., 
and consequently profits would continue unaltered. 

Foreign trade, then, though highly beneficial to 
a country, as it increases the amount and variety of 
the objects on which revenue may be expended, 
and affords, by the abundance and cheapness of 
commodities, incentives to saving, and to the accu- 
mulation of capital, has no tendency to raise the 
profits of stock, unless the commodities imported 
be of that description on which the wages of labour 
are expended. 

The remarks which hsve been made respecting 
foreign trade, apply equally to home trade. The 
rate of profits is never increased by a better distri- 
bution of labour, by the invention of machinery, 
by the establishment of roads and canals, or by any 
means of abridging labour either in the manufac- 
ture or in the conveyance of goods. These are 
causes which operate on price, and never fail to be 
highly beneficial to consumers ; since they enable 
them with the same labour, or with the value of the 
produce of the same labour, to obtain in exchange 
a greater quantity of the commodity to which the 
improvement is applied ; but they have no effect 
whatever on profit. On the other hand, every dimi- 
nution in the wages of labour raises profits, but 
iS 



Ii4j 

} protluces no effect on the price of commodities. 
I One is advantageous to all classes, for all classes 
I are consumers ; the other is beneficial only to pro- 
f ducers ; they gain more, but every thing remains at 
I its former price. In the first case, they get the 
I .§ame as before ; but every thing on which their 
! gains are expended, is diminished in exchangeable 
value. 

The same rule which regulates the relative value 
of commodities in one country, does not regulate 
the relative value of tlie commodities exchanged 
between two or more countries. 

Under a system of perfectly free commerce, each 
country naturally devotes its capital and labour to 
such employments as are most beneficial to each. 
This pursuit of individual advantage is admirably 
connected with the universal good of the whole. 
By stimulating industry, by rewarding ingenuity, 
and by using most efficaciously the peculiar pow- 
ers bestowed by nature, it distributes labour most 
effectively and most economically : while, by in- 
creasing the general mass of productions, it diffuses 
general benefit, and binds together by one common 
tie of interest and intercourse, the universal society 
of nations throughout the civilized world. It is this 
principle which determines that wine shall be made 
in France and Portugal, that corn shall be grown 
in America and Poland, and that hardware and 
other goods shall be manufactured in England. 

In one and the same country, profits arc, gene- 
rally speaking, always on the same level ; or differ 
only as the employment of capital may be more or 



113 

less secure and agreeable. It is not so between 
different countries. If the profits of capital em- 
ployed in Yorkshire, should exceed those of capi- 
tal employed in London, capital would speedily 
move from London to Yorkshire, and an equality of 
profits would be effected ; but if in consequence of 
the diminished rate of production in the lands of 
England, from the increase of capital and popula- 
tion, wages should rise, and profits fall, it would 
not follow that capital and population would neces- 
sarily move from England to Holland, or Spain, or 
Russia, where profits might be higher. 

If Portugal had no commercial connexion with 
other countries, instead of employing a great part 
of her capital and industry in the production 
of wines, with which she purchases for her 
own use the cloth and hardware of other countries, 
she would be obliged to devote a part of that capi- 
tal to the manufacture of those commodities, which 
she would thus obtain probably inferior in quality 
as well as quantity. 

The quantity of wine which she shall give in ex- 
change for the cloth of England, is not determined 
by the respective quantities of labour devoted to 
the production of each, as it would be, if both com- 
modities were manufactured in England, or both 
in Portugal. 

England may be so circumstanced, that to pro- 
duce the cloth may require the labour of 100 men 
for one year ; and if she attempted to make the 
wine, it might require the labour of 120 men for 
the same time. England would therefore find it 



116 

her interest to import wine, and to purchase it by 
the exportation of cloth. 

To produce the wine in Portugal, might require 
only the labour of eighty men for one year, and to 
produce the cloth in the same country, might require 
the labour of ninety men for the same time. It 
would therefore be advantageous for her to export 
wine in exchange for cloth. This exchange might 
even take place, notwithstanding that the commo- 
dity imported by Portugal could be produced there 
with less labour than in England. Though she 
could make the cloth with the labour of ninety men, 
she would import it from a country where it requir- 
ed the labour of 100 men to produce it because it 
would be advantgeous to her rather to employ her 
capital in the production of wine, for which she 
would obtain more cloth from England, than she 
could produce by diverting a portion of her capital 
from the cultivation of vines to the manufacture of 
cloth. 

Thus, England would give the produce of the 
labour of 100 men for the produce of the labour of 
80. Such an exchange could not take place be- 
tween the individuals of the same country. The 
labour of 100 Englishmen cannot be given for that 
of 80 Englishmen, but the produce of the labour of 
100 Englishmen may be given for the produce of 
tlie labour of 80 Portuguese, 60 Russians, or 120 
East Indians. The diHercnce in this respect, be- 
tween a single country and many, is easily account- 
ed for, by considering the difficulty with which 
capital moves from one country to another, to seek 



117 

a more profitable employment, and the activity 
with which it invariably passes from one province 
to another in the same country.* 

It would undoubtedly be advantageous to the 
capitalists of England, and to the consumers in 
both countries, that under such circumstances, the 
wine and the cloth should both be made in Portu- 
gal, and therefore that the capital and labour of 
England employed in making cloth, should be re- 
moved to Portugal for that purpose. In that case, 
the relative value of these commodities would be 
regulated by the same principle, as if one were 
the produce of Yorkshire, and the other of Lon- 
don ; and in every other case, if capital freely 
flowed towards those countries where it could be 
most profitably employed, there could be no differ- 
ence in the rate of profit, and no other difference in 
the real er labour price of commodities, than the ad- 
ditional quantity of labour required to convey them 
to the various markets w here they were to be sold. 

* It will appear then, that a cauntrj possessing very con- 
siderable advantages in machinery and skill, and which may 
therefore be enabled to manufacture commodities with much 
less labour than her neighbours, may in return for such com- 
modities, import a portion of the corn requiied for its con- 
sumption, even if its land were more fertile, and corn could 
be grown with less labour than in the country from which it 
was imported. Two men can both make shoes and hats, and 
one is superior to the other in both employments ; but in 
making hats, he can only exceed his competitor by one fifth 
or 20 per cent., and in making shoes he can excel him by one 
third or S3 per cent.; — will it not be for the interest of both, 
that the superior man should employ himself exclusively ia 
in making shoes, and the inferior man in making hats? 



118 

Experience however sliewsj that the faucied or 
real insecurity of capital, when not under the im- 
mediate controul of its owner, together with the 
natural disinclination which every man has to quit 
the country of his birth and connexions, and in- 
trust himself with all his habits fixed, to a strange 
government and new laws, check the emigration 
of capital. These feelings, which I should be 
sorry to see weakened, induce most men of pro- 
perty to be satisfied with a low rate of profits in 
their own country, rather than seek a more advan- 
tageous employment for their wealth in foreign na- 
tions. 

Gold and silver having been chosen for the ge- 
neral medium of circulation, they are, by the com- 
petition of commerce, distributed in such propor- 
tions amongst the different countries of the world, 
as to accomodate themselves to the natural traflBc 
which wouhf take place if no such metals existed, 
and the trade between countries were purely a 
trade of barter. 

Thus, cloth cannot be imported into Portugal, 
unless it sell there for more gold than it cost in the 
country from which it was imported ; and wine 
cannot be imported into England, unless it will 
sell for more there than it cost in Portugal. If the 
trade were purely a trade of barter, it could only 
continue whilst England could make cloth so cheap 
as to obtain a greater quantity of wine with a given 
quantity of labour, by manufacturing cloth than by 
growing vines ; and also whilst the industry of 
Portusral were attended by the reverse effects. 



ii9 

Now suppose England to discover a process for 
making wine, so that it should become her interest 
rather to grow it than import it : she would na- 
turally divert a portion of her capital from the 
foreign trade to the home trade ; she would cease 
to manufacture cloth for exportation, and would 
grow wine for herself. The money price of these 
commodities would be regulated accordingly ; wine 
would fall here while cloth continued at its former 
price, and in Portugal no alteration would take 
place in the price of either commodity. Cloth 
would continue for some time to be exported from 
this country, because its price would continue to be 
higher in Portugal than here ; but money instead 
of wine would be given in exchange for it, till the 
accumulation of money here, and its diminution 
abroad, should so operate on the relative value of 
cloth in the two countries, that it would cease to be 
profitable to export it. If the improvement in 
making wine were of a very important description, 
it might become profitable for the two countries to 
exchange employments ; for England to make all 
the wine, and Portugal all the cloth, consumed by 
them : but this could be effected only by a new 
distribution of the precious metals, which should 
raise the price of cloth in England, and lower it 
in Portugal. The relative price of wine would 
fall in England in consequence of the real advan- 
tage from the improvement of its manufacture; 
that is to say, its natural price would fall : the re- 
lative price of cloth would rise there from the accu- 
mulation of money. 



Thus, suppose before the improvement in inak- 
iug wine in England, the price of wine here were 
501. per pipe, and the price of a certain quantity 
of cloth were 45/., whilst in Portugal the price 
of the same quantity of wine was 45?., and that 
of the same quantity of cloth 501. ; wine would 
be exported from Portugal with a profit of 5Z., and 
eloth from England with a profit of the same 
amount. 

Suppose that, after the improvement, wine falls 
to 45L in England, the cloth continuing at the 
same price. Every transaction in commerce is an 
independent transaction. Whilst a merchant can 
buy cloth in England for 45/., aad sell it with the 
usual profit in Portugal, he will continue to export 
it from England. His business is simply to pur- 
chase Euglish cloth, and to pay for it by a bill of 
exeliange, which he purchases with Portuguese 
money. It is to him of no importance what be- 
comes of this money ; he has discharged his debt 
by the remittance of the bill. His transaction is 
undoubtedly regulated by the terms on which he 
can obtain this bill, but they are known to him at 
the time ; and the causes which may influence the 
market price of bills, or the rate of exchange, is 
no consideration of his. 

If the markets be favourable for the exportation 
of wine from Portugal to England, the exporter of 
the wine will be a seller of a bill, which will be 
purchased either by the importer of the cloth, or 
by the person who sold him his bill ; and thus 
without the necessity of money passing from either 



121 

country, the exporters in eacb country will be paid 
for their goods. Without having any direct trans- 
action with each other, the money paid in Portugal 
by the importer of cloth will be paid to the Portu- 
guese exporter of wine ; and in England by the 
negotiation of the same bill, the exporter of the 
cloth will be authorized to receive its value from 
the importer of wine. 

But if the prices of wine were such that no wine 
could be exported to England, the importer of 
cloth would equally purchase a bill ; but the price 
of that bill would be higher, from the knowledge 
which the seller of it would possess, that there 
was no counter bill in the market by which he 
could ultimately settle the transactions between the 
two countries: he might know that the gold or 
silver money which he received in exchange for 
his bill, must be actually exported to his corres- 
pondent in England, to enable him to pay the 
demand which he had authorized to be made upon 
him, and he might therefore charge in the price of 
his bill all the expenses to be inenrred, together 
with his fair and usual profit. 

If then this premium for a bill on England 
should be equal to the profit on importing cloth, 
the importation would of course cease ; but if the 
premium on the bill were only S per cent., if to 
be enabled to pay a debt in England of lOOL, 102/. 
should be paid in Portugal, whilst cloth which 
cost 45Z. would sell for 50/., cloth would be im- 
ported, bills would be bought, and money would 
be exported, till the diminution of money in Por- 
tugal, and its accumulation in England, had pro. 
1« 



duced such a state of prices, as would make it 
no louger profitable to continue these transactions. 

But the diminution of money in one country, 
and its increase in another, do not operate on the 
price of one commodity only, but on the prices of 
all, and therefore the price of wine and cloth will 
be both raised in England, and both lowered in 
Portugal. The price of cloth from being 45/. in 
one country, and 501. in the other, would probably 
fall to 49/. or 48/. in Portugal, and rise to 46/. or 
47/. in England, and not afford a sulBScient profit 
after paying a premium for a bill, to induce any 
merchant to import that commodity. 

It is thus that the money of each country is 
apportioned to it in such quantities only as may be 
necessary to regulate a profitable trade of barter. 
England exported cloth in exchange for wine, be- 
cause by so doing, her industry was rendered 
more productive to her ; she had more cloth and 
wine than if she had manufactured both for herself; 
and Portugal imported cloth, and exported wine, 
because the industry of Portugal could be more 
beneficially employed for both countries in produc- 
ing wine. Let there be more diflficulty in England 
in producing cloth, or in Portugal in producing 
wine, or let there be more facility in England inr 
producing wine, or in Portugal in preducing cloth, 
and the trade must immediately cease. 

No change whatever takes place in the circum- 
stances of Portugal ; but England finds that she 
can employ her labour more productively in the 
manufacture of wine, and instantly the trade of 
barter between the two countries changes. Not 



1S3 

only is the exportation of wine from Portugal 
stopped, but a new distribution of the precious 
iHetals takes place, and ber importation of cloth is 
also prevented. 

Both countries would probably find it their in- 
terest to make their own wine and their own cloth ; 
but this singular result would take place : in Eng- 
land, though wine would be cheaper, cloth would 
be elevated in price, more would be paid for it by 
the consumer ; while in Portugal the consumers, 
both of cloth and .of wine, would be able to pur- 
chase those commodities cheaper. In the country 
where the improvement was made, prices would 
be enhanced ; in that where no change had taken 
place, but where they had been deprived of a pro- 
fitable branch of foreign trade, prices would fall. 

This, however, is only a seeming advantage to 
Portugal, for the quantity of cloth and wine toge- 
ther produced in that country would be diminished, 
while the quantity produced in England would be 
increased. Money would in some degree have 
changed its value in the two countries— it would 
be lowered in England, and raised in Portugal. 
Estimated in money, the whole revenue of Portugal 
would be diminished ; estimated in the same 
medium, Hie whole revenue of England would be 
increased. 

Thus then it appears, that the improvement of 
a manufacture in any country tends to alter the 
distribution of the precious metals amongst the na- 
tions of the world : it tends to increase the quan- 
tity of commodities, at the same tinie that it raises 



121 

general prices in the country where the improve- 
ment takes place. 

To simplify the question, I have been suppos- 
ins the trade between two countries to be confined 
to two commodities, to wine and cloth, but it is 
■well known that many and various articles enter 
into the list of exports and imports. By the ab- 
straction of money from one country, and the accu- 
mulation of it in another, all commodities are 
affected in price, and consequently encouragement 
is given to the exportation of many more commo- 
dities besides money, which will therefore prevent 
so great an effect from taking place on the value of 
money in the two countries, as might otherwise be 
expected. 

Beside the improvements in arts and machinery, 
there are various other causes which are constantly 
operating on the natural course of trade, and 
whicli interfere with the equilibrium, and tlie 
relative value of money. Bounties on exportation 
or importation, new taxes on commodities, some- 
times by their direct, and at other times by their 
indirect operation, disturb the natural trade of 
barter, and produce a consequent necessity of im- 
porting or exporting money, in order that prices 
may be accommodated to the natural course of' 
commerce ; and this effect is produced not only in 
the country where the disturbing cause takes place, 
but, in a greater or less degree, in every country 
of the commercial world. 

This will in some measure account for the dif- 
ferent value of money in different countries ; it will 
explain to us why the prices of home commodities, 



±25 

and those of great bulk, are, independently of other 
causes, higher in those countries where manufac- 
tures flourish. Of two countries having precisely 
the same population, and the same quantity of land 
of equal fertility in cultivation, with the same know- 
ledge too of agriculture, the prices of raw produce 
will be highest in that where the greater skill, and 
the better machinery is used in the manufacture of 
exportable commodities. The rate of proiits will 
probably differ but little ; for wages, or the real re- 
ward of the labourer, may be the same in both ; 
but those wages,* as well as raw produce, will be 
rated higher in money in that country, into which, 
from the advantages attending their skill and ma- 
chinery, an abundance of money is imported in ex- 
change for their goods. 

Of these two countries, if one had the advantage 
in the manufacture of goods of one quality, and the 
other in the manufacture of goods of another qua- 
lity, there would be no decided influx of the pre- 
cious metals into either ; but if the advantage very 
heavily preponderated in favour of either, that ef- 
fect would be inevitable. 

In the former part of this work, we have assum- 
ed for the purpose of argument, that money always 
continued of the same value ; we are now endeavour- 
ing to show that besides the ordinary variations in 
the value of money, and those which are common to 
the whole commercial world, there are also partial 
variations to which money is subject in particular 
countries ; and in fact, that the value of money is 
never the same in any two countries, depending as 
it does on relative taxation, on manufacturing skill, 



1S6 

QU the advantages of climate, natural productions, 
and many other causes. 

Although, however, money is suhject to such per- 
petual variations, and consequently the prices of 
the commodities which are common to most coun- 
tries, are also subject to considerable difference, 
yet no effect will be produced on the rate of profits, 
either from the influx or efflulx of money. Cap- 
ital will not be increased, because the circulating 
medium is augmented. If the rent paid by the 
farmer to his landlord, and the w^ages to his labour- 
ers, be SO per cent, highpr in One country than 
another, and if at the same time the nominal value 
of the farmer's capital be SO per cent, more, he 
will receive precisely the same rate of profits, 
althoudi he should sell his raw^ produce 20 per 
cent, higher. 

Profits, it cannot be too often repeated, depend 
T on wages ; not on nominal, but real wages ; not 
on the number of pounds that may be annually 
paid to the labourer, but on the number of days' 
work necessary to obtain those pounds. Wages 
may therefore be precisely the same in two conn- 
tries : they may bear too the same proportion to 
rent, and to the whole produce obtained from the 
land, although in one of those countries the labourer 
should receive ten shillings per week, and in the 
other twelve. 

In the early states of society, when manufac- 
tures have made little progress, and the produce 
of all countries is nearly similar, sonsisting of the 
bulky and most useful commodities, the value of 
money in different countries will be chiefly regulat- 



127 -.._ 

ed by their distance from the mines which supply 
the precious metals ; but as the arts and improve- 
ments, of society advance, and different nations 
excel in particular manufactures, although distance 
will still enter into the calculation, the value of the 
precious metals will be chiefly regulated by the 
superiority of those manufactures. 

Suppose all nations to produce corn, cattle, and 
coarse clothing only, and that it was by the expor- 
tation of such commodities that gold could be ob- 
tained from the countries which produced them, or 
from those who held them in subjection; gold 
would naturally be of greater exchangeable value 
in Poland, than in England, on account of the 
greater expense of sending such a bulky commodity 
as corn the more distant voyage, and also the 
greater expense attending the conveying of gold to 
Poland. 

This difference in the value of gold, or which is 
the same thing, this difference in the price of corn 
in the two countries, would exist although the 
facilities of producing corn in England should far 
exceed those of Poland, from the greater fertility 
of the land, and the superiority in the skill and 
implements of the labourer. 

If however Poland should be the first to improve 
her manufiictures, if she should succeed in making 
a commodity which was generally desirable, in- 
cluding great value in little bulk, or if she should 
be exclusively blessed with some natural produc- 
tion, generally desirable, and not possessed by 
other countries, she would obtain an additional 
quantity of gold in exchange for this commodity, 



138 

which would operate on the price of her corn, 
cattle, and coarse clothing. The disadvantage of 
distance would probaby be more than compensated 
by the advantage of having an exportable commo- 
dity of great value, and money would be perma- 
nently of lower value in Poland than in England. 
If on the contrary, the advantage of skill and 
machinery were possessed by England, another 
reason would be added to that which before existed, 
why gold should be less valuable in England than 
in Poland, and why corn, cattle, and clothing, 
should be at a higher price in the former country. 

These 1 believe to be the only two causes which 
regulate the comparative value of money in the 
different countries of the world ; for although taxa- 
tion occasions a disturbance of the equilibrium of 
money, it does so by depriving the country in 
which it is imposed of some of the advantages 
attending skill, industry, and climate. 

It has been my endeavour carefully to distin- 
guish between a low value of money, and a high 
value of corn, or any other commodity with which 
money may be compared. These have been 
generally considered as meaning the same thing; 
but it is evident, that when corn rises from five to 
ten shillings a bushel, it may be owing either to a 
fall in the value of money, or to the rise in the 
value of corn. Thus we have seen, that from the 
necessity of having recourse successively to land 
of a worse and worse quality, in order to feed au 
increasing population, corn must rise in relative 
value to other things. If therefore money continue 
permanently of the same value, corn will exchange 



139 

for more of such money, that is to say, it will rise 
in price. The same rise in the price of corn will 
be produced by such improvement of machinery 
in manufactures, as shall enable us to manufacture 
commodities with peculiar advantages : for the 
influx of money will be the consequence ; it will 
fall in value, and therefore exchange for less corn. 
But the effects resulting from a high price of cora 
when produced by the rise in the value of corn, 
and when caused by a fall in the value of money, 
are totally different. In both cases the money 
price of wages will rise, but if it be in consequence 
of the fall in the value of money, not only wages 
and corn, but all other commodities will rise. If 
the manufacturer has more to pay for wages, he 
will receive more for his manufactured goods, and 
the rate of profits will remain unaffected. But 
when the rise in the price of corn is the effect of 
the diflBculty of production, profits will fall ; for 
the manufacturer will be obliged to pay more wages, 
and will not be enabled to remunerate himself by 
raising the price of his manufactured commodity. 
Any improvement in the facility of working 
the mines, by which the precious metals may be 
produced with a less quantity of labour, .will sink 
the value of money generally. It will then ex- 
change for fewer commodities in all countries ; but 
when any particular country excels in manufac- 
tures, so as to occasion an influx of money towards 
it, the value of money will be lower, and the prices 
of corn and labour will be relatively higher in thjit 
country, than in any other. 
17 



130 

This higher value of money will not be indicat- 
ed by the exchange; bills may continue to be 
negotiated at par, although the prices of corn and 
labour should be 10, 20, or 30 per cent, higher in 
otie country than another. Under the circumstances 
supposed, such a difference of prices is the natural 
order of things, and the exchange can only be at 
par when a sufficient quantity of money is intro- 
duced into the country excelling in manufactures, 
so as to raise the price of its corn and labour. If 
foreign countries should prohibit the exportation 
of money, and could successfully enforce obedience 
to such a law, they might indeed prevent the rise 
in the prices of the corn and labour of the man- 
ufacturing country; for such rise can only take 
place after the influx of the precious- metals, sup- 
posing paper money not to be used ; but they 
could not prevent the exchange from being very 
unfavourable to them. If England were the 
manufacturing country, and it were possible to 
prevent the importation of money, the 'exchange 
with France, Holland, and Spain, might be 5, 10, 
or 20 per cent, against those countries. 

Whenever the current of money is forcibly 
stopped, and when money is prevented from settling 
at its just level, there are no limits to the possible 
variations of the exchange. The effects are 
similar to those which follow, when a paper money, 
not exchangeable for specie at the will of the 
holder, is forced into circulation. Such a currency 
is necessarily confined to the country where it is 
issued : it cannot, when too abundant, diffuse 
itself generally amongst other countries. Th^e 



131 

level of circulation is destroyed, and the exchange 
will inevitably be unfavourable to the country 
where it is excessive in quantity : just so would 
be the effects of a metallic circulation, if by forci- 
ble means, by laws which could not be evaded, 
money should be detained in a country, when the 
stream of trade give it an impetus towards other 
countries. 

When each country has precisely the quantity 
of money which it ought to have, money will not 
indeed be of the same value in each, for with 
respect to many commodities it may differ 5, 10, 
or even 20 per cent., but the exchange will be at 
par. One hundred pounds in England, or the 
silver which is in iOOl. will purchase a bill of 100?., 
or an equal quantity of silver in France, Spain, 
or Holland. 

In speaking of the exchange and the compara- 
tive value of money in different countries, we must 
not in the least refer to the value of money esti- 
mated in commodities, in either country. The 
exchange is never ascertained by estimating the 
comparative value of money in corn, cloth, or any 
commodity whatever, but by estimatina; the value 
of the currency of one country, in the currency of 
another. 

It may also be ascertained by comparing it with 
some standard common to both countries. If a 
bill on England for 100/. will purchase the same 
quantity of goods in France or Spain, that a bill 
on Hamburgh for the same sum will do, the ex- 
change between Hamburgh and England is at par; 
but if a bill on England for 130/., will purchase 



no more than a bill on Hamburgh for 100^., the 
exchange is 30 per cent, against England. 

In England 100/. may purchase a bill, or the 
right of receiving 101/. in Holland, 102/. in 
France, and 105/. in Spain. The exchange with 
England is, in that case, said to be 1 per cent., 
against Holland, S per cent, against France, and 5 
per cent, against Spain. It indicates that the level 
of currency is higher than it should be in those 
countries, and the comparative value of their cur- 
rencies, and that of England^ would be immediate- 
ly restored to par, by abstracting from theirs, or 
by adding to that of England. 

Those who maintained that our currency was 
depreciated during the last ten years, when the 
exchange varied from SO to 30 per cent, against 
this country, have never contended, as they have 
been accused of doing, that money could not be 
more valuable in one country than another, as com* 
pared with various commodities : but they did con- 
tend, that 130/. could not be detained in England, 
when it was of no more value, estimated in the 
money of Hamburgh, or of Holland, than 100/. 

By sending 130/. good English pounds sterling 
to Hamburg, even at an expense of 5/., I should 
be possessed there of 1251. ; what then could make 
me consent to give 130/. for a bill which would 
give me 100/. in Hamburgh, but that my pounds 
were not good pounds sterling ?— they were dete- 
riorated, were degraded in intrinsic value below 
the pounds sterling of Hamburgh, and if actually 
sent there, at an expense of 5/., would sell only 
for 100/. With metallic pounds sterling, it is not 



133 

denied that my 130Z. would procure me lS5t. ia 
Hamburgh, but with paper pounds sterling I can 
only obtain lOOZ. ; and yet it is maintained that 
430^. in paper, is of equal value with 130Z. in sil- 
ver or gold. 

Some indeed more reasonably maintained, that 
430/. in paper was not of equal value with 130Z. 
in metallic money ; but they said that it was the 
metallic money which had changed its value, and 
not the paper money. They wished to confine the 
meaning of the word depreciation to an actual fall 
of value, and not to a comparative difference be- 
tween the value of money, and the standard by 
which by law it is regulated. One hundred 
pounds of English money was formerly of equal 
value with, and could purchase iOOl. of Hamburgh 
money : in any other country a bill of iOOl. on 
England, or on Hamburgh, couUl purchase pre- 
cisely the same quantity of commodities. To obtain 
the same things, I was lately obliged to give iSOl. 
English money, when Hamburgh could obtain 
them for iOOl. Hamburgh money. If English mo- 
ney was of the same value then as before, Ham- 
burgh money must have risen in value. But where 
is the proof of this ? How is it to be ascertained 
whether English money has fallen, or Hamburgh 
money has risen? there is no standard by which this 
can be determined. It is a plea which admits of 
no proof, and can neither be positively affirmed, 
nor positively contradicted. The nations of the 
world must have been early convinced, that there 
was no standard of value in nature, to which we 
might unerringly ref«r; and therefore chose a me- 



134f 

dium, which,- on the whole appeared to them less 
variable tlian any other commodity. 

To this standard we must conform till the law 
is changed, and till some other commodity is dis*- 
covered, by tlie use of which we shall obtain a 
more perfect standard, than that which we have 
established. While gold is exclusively the stan- 
dard in this country, money will be depreciated, 
wlien a pound sterling is not of equal value with 
5 dwts. and 3 grs. of standard gold, and that, 
whether gold rises or falls in general value. 



CHAPtER VII. 

On Taxes, 

Taxes are a portion of the produce of the 
land and labour of a country, placed at the dis- 
posal of the government ; and are always ultimate- 
ly paid, either from the capital, or from the reve- 
nue of the country. 

We have already shewn how the capital of a 
country is either fixed or circulating, according as 
it is of a more or of a less durable nature. It is dif- 
ficult to define strictly, where the distinction between 
circulating and fixed capital begins; for there are al.- 
most infinite degrees in the durability of capital. 
The food of a country is consumed and reproducedj^ 
at least once in every year ; the clothing ©f the la- 
bourer is probably not consumed ani reproduced 
in less than two years ; whilst his h.oi^& and furni- 
ture are calculated to endure for a. period of ten or 
twenty years. 

When the annual prodnctio /is ©f a country ejt- 
ceed its annual consumption, it is said to increase 
its capital ; when its annual f io^sumption at least is 
not replaced by its annual j jroduction, it is said to 
diminish its capital. Capi tal may therefore be in- 
creased by an increased pr Qducti9n, or by a dimiu-^^ 
ished consumption. 



136 

If the consumption of the government^ when in- 
creased by the levy of additional taxes, be met 
either by an increased production, or by a dimin- 
ished consumption on the part of the people, the 
taxes will fall upon revenue, and the national capi- 
tal will remain unimpaired ;*but if there be no in- 
creased productions or diminished consumption on 
the part of the people, the taxes will necessarily 
fall on capital. 

In proportion as the capital of a country is di- 
minished, its productions will be necessarily dimin. 
ished ; and therefore, if the same expenditure on 
the part of the people and of the government con- 
tinue, with a constantly diminishing annual pro- 
duction, the resources of the people and the state 
will fall away with increasing rapidity, and dis- 
tress and ruin, will follow. 

-Notwithstanding the immense expenditure of 
the English government during the last twenty 
years, there can be little doubt but that the increas- 
ed production on the part of the people has more 
than compensated for it. The national capital has 
not merely been unimpaired, it has been greatly 
increased, and the annual revenue of the people, 
even after the payment of their taxes, is probably 
greater at the present time than at any former pe- 
riod of our history. 

For the proof of this we might refer to the in- 
crease of population — to the extension of agricul- 
ture — to the increase of shipping and manufac- 
tures — to the building of docks — to the opening of 
numerous canals, as well as to many other expen» 



137 

sive undertakings ; all denoting an increase both of 
capital and of annual production. z 

There are no taxes which liave not a tendency to 
impede accumulation, because there are none which 
may not be considered as checking production, and 
as causing the same effects as a bad soil or climate, 
a diminution of skill or industry, a worse distribu- 
tion of labour, or the loss of some useful machine- 
ry ; and although some taxes will produce these ef- 
fects in a much greater degree than others, it must 
be confessed that the great evil of taxation is to be 
found, not so much in any selection of its objects, 
as in the general amount of its effects taken collec= 
tively.. 

Taxes are not necessarily taxes on capital, be- 
cause they are laid on capital ; nor on income, be- 
cause they are laid on income. If from my in- 
come of lOOOZ. per annum, I am required to pay 
100/., it will really be a tax on my income, should 
I be content with the expenditure of the remaining 
900Z. ; but it will be a tax on capital, if I continue 
to spend 1000/. 

The capital from which my income of 1000/. is 
derived may be of the value of J 0,000/. ; a tax of 
one per cent, on such capital would be 100/. ; but 
my capital would be unaffected, if after paying this 
tax, I in like manner contented myself with the ex- 
penditure of 900/. . 

The desire which every man has to keep his sta- 
tion in life, and to maintain his wealth at the height 
which it has once attained, occasions most taxes, 
whether laid on capital or on income, to be paid 

from income ; and therefore as taxation proceeds, 
18 



138 

or as government increases its expenditure, the an- 
nual expenditure of tlie people must be diminish- 
ed, unless they are enabled proportionally to in- 
crease their capitals and income. It should be the 
policy of governments to encourage a disposition 
to do this in the people, and never to lay such taxes 
as will inevitably fall on capital ; since by so do- 
ing, they impair the funds for the maintenance of 
labour, and thereby diminish the future production 
of the country. 

In England this policy has been neglected, in 
taxing the probates of Avilis, in tiie legacy duty, and 
in all taxes affecting the transference of property 
from the dead to the living. If a legacy of lOOOL 
be subject to a tax of lOOZ., the legatee considers 
his legacy as only 900/., and feels no particular 
motive to save the iOOl. duly from his expenditure, 
and thus the capital of the country is diminished ; 
but if he had really received iOOOZ. and had been 
required to pay IOOL as a tax on income, on wine, 
on horses, or on servants, he would probably have 
diminished, or rather not increased his expenditure 
by that sum, and the capital of the country would 
have been unimpaired. 

" Taxes upon the transference of property from 
the dead to the living,'' says Adam Smith, " fall 
finally, as well as immediately, upon the persons 
to whom the property is transferred. Taxes on 
the sale of land fall altogether upon the seller. 
The seller is almost always under the necessity of 
selling, and must therefore take such a price as he 
can get. The buyer is scarce ever under the ne- 
cessity of buying, and will therefore only give such 



139 

a price as he likes. He considers wliat the land 
will cost him in tax and price together. The more 
he is obliged to pay in the way of tax, the less he 
will be disposed to give in the way of price. Such 
taxes, therefore, fall almost always upon a neces- 
sitous person, and must therefore be very cruel and 
oppressive.'' " Stamp duties, and duties upon the 
registration of bonds and contracts for borrowed 
money, fall altogether upon the borrower, and in 
fact are always paid by him. Duties of the same 
kind upon law proceedings fall upon the suitors. 
They reduce to both the capital value of the sub- 
ject in dispute. The more it costs to acquire any 
property, the less must be the neat value of it when 
acquired. All taxes upon the transference of pro- 
perty of every kind, so far as they diminish the ca- 
pital value of that property tend to diminish the 
funds destined for the maintenance of labour. They 
are all more or less unthrifty taxes, that Increase 
the revenue of the sovereign, which seldom main- 
tains any but unproductive labourers, at the expense 
of the capital of the people, which maintains none 
but produciivc.'' ■ 

But this is. not the only objectionto taxes on the 
transference of property ; they prevent the national 
capital from being distributed in tire way most be- 
neficial to the community. For the general pros-. 
perity, there cannot be too much facility given to the 
conveyance and exchange of all kinds of property, 
as it is by such meansthat Capital of every species 
is likely to find its way into the hands of those, who 
will best employ it in increasing the productions of 
the country. ^* Why,*' asks M. Say, '' does an in- 



140 

dividual wish to sell bis land ? it is because be has 
another employment in view in which his funds will 
be more productive. Why does another wish to 
purchase this same land? it is to employ a capital 
which brings him in too little, which was unem- 
ployed, or the use of which he thinks susceptible 
of improvement. This exchange will increase the 
general income, since it increases the income of these 
parties. But if the charges are so exorbitant as to 
prevent the exchange, they are an obstacle to this 
increase of the general income." Those taxes how- 
ever are easily collected ; and this by many may be 
thought to afford some compensation for their inju- 
rious effects. 



CHAPTER VUI. 

Taxes on Raw Produce, 

Having in a former part of this work esta- 
blished, I hope satisfactorily, the principle, that 
the price of corn is regulated by the cost of its 
production on that land exclusively, or rather with 
that capital exclusively, which pays no rent, it will 
follow that whatever may increase the cost of pro- 
duction will increase the price ; whatever may re- 
duce it, will lower the price. The necessity of 
cultivating poorer land, or of obtaining a less re- 
turn with a given additional capital on land already 
in cultivation, will inevitably raise the exchangea- 
ble value of raw produce. The discovery of 
machinery, which will enable the cultivator to 
obtain his corn at a less cost of production, will 
necessarily lower its exchangeable value. Any tax 
which may be imposed on the cultivator, whether 
in the shape of land-tax, tithes, or a tax on the 
produce when obtained, will Increase the cost of 
production, and will therefore raise the price of 
raw produce. 

If the price of raw produce did not rise so as to 
compensate the cultivator for the tax, he would 
naturally quit a trade where his profits were re- 



duced below the general level of profits: this 
would occasion a diminution of sup^dy, until the 
unabated demand should have produced such a 
rise in the price of raw produce, as to make the 
cultivation of it equally profitable with the invest- 
ment of capital in any other trade. 

A rise of price is the only means by which he 
could pay the tax, and continue to derive the usual 
and general profits from tliis employment of bis 
capital. He could not deduct the tax from his rent 
and oblige his landlord to pay it, for he pays no 
pent. He would not deduct it from his profits, for 
there is no reason why he should continue in an 
employment which yields small profits, when all 
other employments are yielding greater. There 
can then be no question, but that he will have the 
power of raising the price of raw produce by a 
sum equal to the tax. 

A tax on raw produce would not be paid by the 
landlord; it would not be paid by the farmer; 
but it would be paid, in an increased price, by the 
consumer. 

Kent, it should be remembered, is the difference 
between the produce obtained by equal portions of 
labour and capital employed on land of the same 
or different qualities. It should be remembered 
too, that the money rent of land, and the corn rent 
of land, do not vary in the same proportion. 

In the case of a tax on raw produce, of a land 
tax, or tithes, the corn rent of land will vary, while 
the money rent will remain as before. 
• If, as we have before supposed, the land in cul- 
tivation were of tliree qualities; and that with an 
equal amount of capital^ 



143 

180 qrs. of corn were obtained from land No. 1. 
170 . . . from . . . S. 
160 . . . from ... 3. 
tie rent of No 1 would be 20 quarters, the dif- 
ference between that of No. 3 and No. 1; and of 
No 2j 10 quarters, the difference between that of 
No. 3 and No. 2; while No. 3 would pay no rent 
whatever. 

Now if the price of corn were 4Z. per quarter, 
the money rent of No. 1 would be 80/., and that 
of No. S, 40/. 

Suppose a tax of 8s. per quarter to be imposed 
on corn ; then the price would rise to 4/. 8s. ; and 
if the landlords obtained the same corn rent as 
before, the rent of No. 1 would be 88/., and that 
of No. 2f 44/. But they would not obtain the 
same corn rent; the tax would fall heavier on No. 
1 than on No. 2, and on No. 3 than on No. 3, 
because it would be levied on a greater quantity of 
corn. It is the difficulty of production on No. 3 
which regulates priee; and corn rises to 4/. 85. 
that the profits of the capital employed on No. 3 
may be on a level with the general profits of stock. 

The produce and tax on the three qualities of 
land will be as follows : 

No 1, yielding 180 qrs. at 4L 8s. per qr. . . 1.792 
Deduct the value of 16.3 or 8s. per qr. on 180 qrs. 72 

Net cprn produce 163.7 Net money produce Z.720 

No. 2, yielding 170 qrs. at 4/. 8s per qr. . . • /.748 

Deduct the value of 15.4 5 ^"«' ^^ ^^- ^Z' «^ ^'- P"" ? 68 

I qr. on 170 qrs. 3 

Net corn produce 154,6 Net money produce /.680 



14* 

No. 3, 160 qrs. at 4Z. 8s. . . . . Z.704 

Bedutt the value of 14.5 ^^''' ^^^^:^^\^q^'' P''^ 64 

Net corn produce 145.5 Net money produce Z.640 

The money rent of No. 1 would continue to be 
80/., or the difference between 640 and 7201; and 
that of No. S/40/., or the difference between 640Z. 
. ~ gind 680?., precisely the game as before ; but the 
corn rent will be reduced from 20 quarters on No. 
1 to 18.3 quarters, and that on No. 2 from 10 to 
9.1 quarters. 

A tax on corn, then would fall on the consumers 
of corn, and would raise its value as compared 
with all other commodities, in a degree proportion- 
ed to the tax. In proportion as raw produce 
entered into the composition of other commodities, 
would their value also be raised, unless the tax 
Avere countervailed by other causes. They would 
in fact be indirectly taxed, and their value would 
rise in proportion to the tax. 

A tax, however, on raw produce, and on the 
necessaries of the labourer, vi^ould have another 
effect — it would raise wages. From the effect of 
the principle of population on the increase of man- 
kind, wages of the lowest kind never continue 
much above that rate which nature and habit de- 
mand for the support of the labourers. This class 
is never able to bear any considerable portion of 
taxation ; and consequently, if they had to pay 8s. 
per quarter in addition for wheat, aud in some 
smaller proportion for other necessaries, they 
would not be able to subsist on the same wageia as 



145 

before, and to keep up the race of labourers. Wa- 
ges would inevitably and uecessarily rise ; and in 
proportion as they rose, profits would falL Go- 
vernment would receive a tax of 8.9. per qisarter 
on all the corn consumed in the country, a part of 
which would be paid directly by the consumers of 
corn ; the other part would be paid indirectly by 
M<is#'^Vho: employed labour, and would affect 
profits in the same manner as if wages had been 
raised from the increased demand for labour com- 
pared with the supply, or from an increasing diffi- . 
culty of obtaining the food and necessaries requir-^ 
ed by the labourer. 

j In as" far as the tax might affect consumers, 
it would be an equal tax, but in as far as it would 
affect profits, it would be a partial tax ; for it 
would neither operate on the landlord nor on the 
stockholder, since they would continue to receive^ 
the one the same money rent, the other the same 
money dividends as before. A tax on the produce 
of the land then would operate as follows : 

1st. It would raise the price of raw produce by 
a sum equal to the tax, and would therefore 
fall on each consumer in proportion to his 
consumption. 
2dly. It would raise the wages of labour_, and 
lower profits. 
It may then be objected against such a tax, 

1st That by raising the wages of labour^ and 
lowering profits, it is an unequal tax, as it ef- 
fects the income of the farmer, trader, and 
manufacturer; and leaves untaxed the income 
. 19 



146 

of the landlord, stockholder, and others en- 
joying fixed incomes, 
^dly. That there would be a considerable inter- 
val between the rise in the price of corn and 
the rise of wages, during which much distress 
would be experienced by the labourer. 
3dly. That raising wages and lowering profits 
' is a discouragement to accumulation, and acts 

in the same way as a natural poverty of soil. 
4thly. That by raising the price of raw produce, 
the prices of all commodities into which raw 
produce enters, would be raised, and that 
' therefore we should not meet the foreign man- 
ufacture on equal terms in the general market. 
With respect to the first objection, that by. rais- 
ing the wages of labour and lowering profits it acts 
unequally, as it affects the income of the farmer, 
trader, and manufacturer, and leaves untaxed the 
income of the landlord, stockholder, and others 
enjoying fixed incomes, — it may be answered, 
that if the operation of the tax be unequal, it is 
for the legislature to make it equal, by taxing di- 
rectly the rent of land, and the dividends from 
stock. By so doing, all the objects of an income 
tax would be obtained, without the inconvenience 
of having recourse to the obnoxious measure of 
prying into every man's concerns, and arming 
commissioners with powers repugnant to the habits 
and feelings of a free country. 

With respect to the second objection, that there 
would be a considerable interval between the rise 
pf the price of corn and the rise of wages, during 
which much distress would be experienced by the 



147 

lower classes,— I answer, that under different cir- 
cumstances, wages follow the price of raw pro- 
duce with very different degrees of celerity ; that 
in some cases no effect whatever is produced on 
wages by a rise of corn ; in others, the rise of wa- 
ges precedes the rise in the price of corn ; again, 
in some the effect is slow, and in others the inter- 
val must be very short. 

Those who maintain that it is the price of neces- 
saries which regulates the price of labour, always 
allowing for the particular state of progression in 
which the society, may be seem to have conceded 
too readily, that a rise or fall in the price of ne- 
cessaries will be very slowly succeeded by a rise 
or fall of wages. A high price of provisions may 
arise from very different causes, and may accord- 
ingly produce very different effects. It may arise 
from — 

1st. A deficient supply. 

Sdly. From a gradually increasing demand, 
which maybe ultimately attended with an in- 
creased cost of production. 

3dly. From a fall in the value of money. 

4thly. From taxes on necessaries. 

These four causes have not been sufficiently dis- 
tinguished and separated by those who have inquir- 
ed in the influence of a high price of necessaries 
on wages. We will examine them severally. 

A bad harvest will produce a high price of pro- 
visions,* and the high price is the only means by 
which the consumption is compelled to conform to 
the state of the supply. If all the purchasers of 
corn were noh, the price might rise to any degree, 



148 

but the result would remain unaltered ; the price 
would at last be so high, that the least rich would 
be obliged to forego the use of a part of the quan- 
tity which they usually consumed, as by diminished' 
consumption alone, the demand could be brought 
down to the limits of the supply. Under such cir- 
cumstances no policy can be more absurd, than 
that of forcibly regulating money wage.s by the 
price of food, as is frequently done, by misappli- 
cation of the poor laws. Such a measure afibrds 
no real relief to the labourer, because its eflect is 
to raise still higher the price of corn, and at last he 
must be obliged to limit his consumption in propor- 
tion to the limited supply. In the natural course 
of affairs a deficient supply from bad seasons, with- 
out any pernicious and unwise interference, would 
not be followed by a rise of wages. The raising 
of wages is merely nominal to those who receive 
them; it increases the competition in the corn mar- 
ket, and its ultimate effect is to raise the profits of 
the growers and dealers in corn. The wages of 
labour are really regulated by the proportion be- 
tween the supply and demand of necessaries, and 
the supply and demand of labour ; and money is 
merely the medium, or measure, in which wages 
are expressed. In this case then the distress of 
the labourer is unavoidable, and no legislation can 
afford a remedy, except by the importation of ad- 
ditional food. 

When a high price of corn is the effect of an in* 
creating demand, it is always preceded by an in- 
crease of wages, for demand cannot increase, with- 
out an increase Qf means in the people to pay for 



149 

that which they desire. An accumulation of capi- 
tal naturally produces an increased competition 
among the employers of labour, and a consequent 
rise in its price. The increased wages are not im* 
mediately expended on food, but are first made to 
contribute to the other enjoyments of the labourer. 
His improved condition however induces, and ena- 
bles him to marry, and then the demand for food 
for the support of his family naturally supersedes 
that of those other enjoyments on which his wages 
were temporarily expended. Corn rises then be- 
cause the demand for it increases, because there are 
those in the society who have improved means of 
paying for it; and the profits of the farmer will be 
raised above the general level of profits, till the re- 
quisite quantity of capital has been employed on 
its. production. Whether, after this has taken 
place, corn shall again fall to its former price, or 
shall continue permanently higher, will depend on 
the quality of the land from which tlie increased 
quantity of corn has been supplied. If it be ob- 
tained from land of the same fertility, as that which 
Was last in cultivation, and with no greater cost of 
labour, the price will fall to its former state ; if from 
poorer land, it will continue permanently higher. 
The high wages in the first instance proceeded 
from an increase in the demand for labour : inas- 
much as it encouraged marriage, and supported 
children, it produced the effect of increasing the 
supply of labour. But when the supply is obtain*- 
cd, wages will again fa,ll to their former price, if 
corn has fallen to its former price : to a higher 
than the former price, if the increased supply of 



Coi'h iias been produced from land of an inferiot 
quality. A high price is by no means incompati- 
ble with an abundant supply ; the price is perma- 
nently high, not because the quantity is deficient, 
but because there has been an increased cost in pro- 
ducing it. It generally happens indeed, that when 
a stimulus has been given to population, an effect 
is produced beyond what the case requires ; the po- 
pulation may be, and generally is so much increas- 
ed as, notwithstanding the increased demand for 
labour, to bear a greater proportion to the funds 
for maintaining labourers than before the increase 
of capital. In this case a re-action will take place, 
wa2;es will be below their natural level, and will 
continue so, till the usual proportion between the 
supply and demand has been restored. In this 
case then, the rise in the price of corn is preceded 
by a rise of wages, and therefore entails no distress 
on the labourer. 

A fall in the value of money, in consequence of 
an influx of the precious metals from the mines, or 
from the abuse of the privileges of banking is ano- 
ther cause for the rise of the price of food ; but it 
will make no alteration in the quantity produced. 
It leaves undisturbed too the number of labourers, 
as well as the demand for them ; for there will be 
neither an increase nor a diminution of capital. 
The quantity of necessaries to be allotted to the 
labourer, depends on the comparative demand and 
Supply of necessaries, with the comparative demand 
and supply of labour ; money being only the me- 
dium in which the quantity is expressed ; and as 
neither of these is altered^ the real reward of the 



151 

labourer will not alter. Money wages will rise, 
but they will only, enable him to furnish himself 
with the same quantity of necessaries as before. 
Those who dispute this principle are bound to shew 
why an increase of money should not have the same 
effect in raising the price of labour, the quantity of 
which has not been increased, as they acknowledge 
it would have on the price of shoes, of hats, and 
of corn, if the quantity of those commodities were 
not increased. The relative market value of hats 
and shoes is regulated by the demand and supply 
of hats, compared with the demand and supply of 
shoes, and money is but the medium in which their 
value is expressed. If shoes be doubled in price, 
hats will also be doubled in price, and they will 
retain the same comparative value. So if corn and 
all the necessaries of the labourer be doubled in 
price, labour will be doubled in price also, and 
while there is no interruption to the usual demand 
and supply of necessaries and of labour, there can 
be no reason why they should not preserve their 
relative value. 

Neither a fall in the value of money, nor a tax 
on raw produce, though each will raise the price, 
will necessarily interfere with the quantity of raw 
produce ; or with the number of people, who are 
both able to purchase, and willing to consume it. 
It is very easy to perceive why, when the capital 
of a country increases irregularly, wages should 
rise, whilst the price of corn remains stationary, 
or rises in a less proportion ; and why, when the 
capital of a country diminishes, wages should fall 
whilst corn reojains stationary^ or falls in s\, much 



152 

less proportion, and this too for a considerable 
time ; the reason is, because labour is a commodity 
which cannot be increased and diminished at plea- 
sure. If there are too few hats in the market for 
the demand, the price will rise, but only for a 
short time; for in the course of one year, by em- 
ploying more capital in that trade, any reasonable 
addition may be made to the quantity of hats, and 
therefore their market price cannot long very much 
exceed their natural price ; but it is not so with 
men; 'you cannot increase their number in one or 
two years when there is an increase of capital, nor 
can you rapidly diminish their number when capi- 
tal is in a retrograde state ; and therefore, the num- 
ber of hands increasing or diminishing slowly, 
whilst the funds for the maintenance of labour in- 
crease or diminish rapidly, there must be a con- 
siderable interval before the price of labour, is 
exactly regulated by the price of corn and necessa- 
ries; but in the case of a fall in the value of 
money, or of a tax on corn, there is not necessarily 
any excess in the supply of labour, nor any abate- 
ment of demand, and therefore there can be no 
reason why the labourer should sustain a real dimi- 
nution of wages. 

A tax on corn does not necessarily diminish the 
quantity of corn, it only raises its money price ; it 
docs not necessarily diminish the demand compared 
with the supply of labour; why then should it 
diminish the portion paid to the labourer? Suppose 
it true that it did diminish the quantity given to 
ihe labourer, in other words, that it did not raise 
his money wages in the same proportion as the tax 



153 

raisetl the price of the corn which he coiisiimed ; 
woultl not the supply of corn exceed the demand?— 
Would it not fall in price ? And would not the 
labourer thus obtain his usual portion ? In such 
case indeed capital would be withdrawn from agri- 
culture ; for if the price were hot increased by the 
whole amount of the tax, agricultural profits would 
be .lower than the general level of profits, and 
capital would seek more advantageous employment. 
In regard then to a tax on raw produce, which is 
the point under discussion, it appears to me that 
no interval which could bear oppressively on the. 
labourer, would elapse between the rise in the 
price of raw produce, and the rise in the wages of 
the labourer ; and that therefore no other inconve- 
nience WQuld be suffered by this class, than that 
which they would suffer from any other mode of 
taxation, namely, the risk that the tax might in- 
fringe on the funds destined for the maintenance of 
labour, and might therefore check or abate the de- 
mand for it. 

With respect to the third objection against taxes 
on raw produce, namely, that the raising wages, 
and lowering profits, is a discouragement to accu- 
iriulation, and acts in the same way as a natural 
poverty of soil ; I have endeavoured to shew in 
another part of this work that savings may be as 
effectually made from expenditure as from produc- 
tion ; from a reduction in the value of commodities, 
as from a rise in the rate of profits. By increasing 
my profits from lOOOZ. to 1300/., whilst prices con- 
tinue the same, my power of increasing ray capitaj 

by savings is increascil but it is>rvot increased sp- 
SO 



154 

much as it would be if my profits continued as be- 
fore, whilst commodities were so lowered in price, 
that 8001, would procure me as much as 10002. 
purchased before. 

Taxation under every form presents but a choice 
of evils ; if it do not act on profit, it must act on 
expenditure ; and provided the burden be equally 
borne, and do not repress reproduction, it is indiffer- 
ent on which it is laid. Taxes on production, or on 
the profits of stock, whether applied immediately to 
profits, or indirectly, by taxing the land or its pro- 
duce, have this advantage over other taxes; no 
class of the community can escape them, and each 
contributes according to his means. 

From taxes on expenditure a miser may escape ; 
he may have an income of 10,000 per annum, and 
expend only 300Z. ; but from taxes on profits, whe- 
ther direct or indirect, he cannot escape ; he will 
contribute to them eiiher by giving up a part or 
the value of a part of his produce ; or by the ad- 
vanced prices of the necessaries essential to pro- 
duction, he will be enabled to continue to accumu- 
late at the same rate. He may indeed have an in- 
come of the same value, but he will not have the 
some command of labour, nor of an equal quantity 
of materials on which such labour can be exer- 
cised. 

If a country is insulated from all others, having 
no commerce with any of its neighbours, it can la 
no way shift any portion of its taxes from itself. 
A portion of the produce of its laud and labour 
will be devoted to the service of the state ; and I 
cannot but think that, unless it presses unequally 



155 

on that class which accumluates and saves, it will 
be of little importance whether the taxes be levied 
on profits, on agricultural, or on manufactured com- 
modities. If my revenue be 1000/. per annum, and 
I must pay taxes to the amount of lOOZ. it is of lit- 
tie importance whether I pay it from my revenue, 
leaving myself only 900/., or pay 100/. in addition 
for my agricultural commodities, or for my manu- 
factured goods. If 100/. is my fair proportion of 
the expenses of the country, the virtue of taxation 
consists in making sure that I shall pay that 100/.^ 
neither more nor less ; and that cannot be eifected 
in any manner so securely as by taxes on wages, 
profits, or raw produce. 

The fourth and last objection which remains to 
be noticed is : That by raising the price of raw pro- 
duce, the prices of all commodities into which raw 
produce enters, will be raised, and' that therefore 
we shall not meet the foreign manufacturer on equal 
terms in the general market. 

In the first place, corn and all home commodities 
could not be materially raised in price without an 
influx of the precious metals ; for the same quan- 
tity of money could not circulate the same quantity 
of commodities, at high as at low prices, and the 
precious metals never could be pureJiased with dear 
commodities. When more gold is required, it must 
be obtained by giving more, and not fewer commo- 
dities in exchange for it. Neither could the want 
of money be supplied by paper, for it is not paper 
that regulates the value of gold as a commodity, 
but gold that regulates the value of paper. Unless 
then the value of gold could be lowered, no paper 



156 

could Le added to tliecirculation without being de- 
preciated. And that the value of gold could not 
be lowered appears clear, when we consider that 
the value of gold as a commodity must be regulat- 
ed by the quantity of goods which must be given 
to foreigners in exchange for it. When gold is 
cheap, commodities are dear; and when gold is 
dear, commodities are cheap, and fall in price. 
Now as no cause is shewn why foreigners should 
sell their gold cheaper than usual, it does not ap- 
pear probable that there would be any influx of 
gold. Without such an influx there can be no in- 
crease of quantity, no fall in its value, no rise in 
the general price of goods. 

The probable effect of a tax on *raw produce 
would be to raise the price of all commodities in 
which raw produce entered, but not in any degree 
proportioned to the tax ; while other commodities 
in which no raw produce entered, such as articles 
made of the metals and the earths, would fall in 
price : so that the same quantity of money as be- 
fore would be adequate to the whole circulation. 

A tax which should have the effect of raising 
the pricb of all home productions, would not discou- . 
vage exportation, except during a very limited time, . 
If they were raised in price at home, they could 
not indeed immediately be profitably exported, be- 
cause they would be subject to a burthen here from 
which abroad they were free. The tax would pi'o- 
duce the same effect as an alteration in the value 
of money, which was not general and common to 
all countries, but confined to a single one. If Eng- 
land were that country, she might not be able to 



157 

sell, but slie would be able to buy, because import- 
able commodities would not be raised in price. Un- 
der these circumstances nothing but money could 
be exported in return for foreign commodities, but 
this is a trade which could not long continue ; a na- 
tion cannot be exhausted of its money, for after a 
certain quantity has left it, the value of the remain- 
der will rise, and such a price of commodities will 
be the consequence, that they will again be capa- 
ble of being profitably exported. When money 
had risen, therefore, we should no longer export it 
in return for goods imported, but we should export 
those manufactures which had first been raised in 
price, by the rise in the price of the raw produce 
from which they were made, and then again low- 
ered by the exportation of money. 

But it may be objected, that when money so rose 
in value, it would rise with respect to foreign as 
well as home commodities, and therefore that all en- 
couragement to import foreign goods would cease. 
Thus, suppose we imported goods which cost 100/. 
abroad, and which sold for 1201. here, we should 
cease to import them, when the value of money had 
so risen in England, that the^ would only sell for 
iOOl. here : this however could never happen. 
The motive which determines us to import a com- 
modity, is the discovery of its relative cheapness 
abroad: it is the comparison of its natural price 
abroad, with its natural price at home. If a country 
exports hats, and imports cloth, it does so because it 
can obtain more cloth by making hats, and exchanging 
them for cloth, than if it made the cloth itself. If the 
jrise.of raw produce occasions any increased cost of 



158 

production in making hats, it would occasion also an 
increased cost in making cloth. If therefore both com- 
modities were made at home, they would both rise. 
One, /however, being a commodity which we im- 
port, would not rise, neither would it fall, when 
the value of money rose ; for by not falling, it 
would regain its natural relation to the exported 
commodity. The rise of raw produce makes a 
hat rise from 30 to 33 shillings, or ten per cent. : 
the same cause if we manufactured cloth, would 
make it rise from 20_s. to 22s. per yard. This rise 
does not destroy the relation between cloth and 
hats ; a hat was, and continues to be, worth onei 
yard and a half of cloth. But if Ave import 
cloth, its price will continue uniformly at Ws. per 
yard, unaffected first by the fall, and then by the 
rise in the value of money ; whilst hats, which had . 
risen from SOs. to 33s., will again fall from 33s, to 
30s., at which point the relation between cloth and 
hats will be restored. 

To simplify the consideration of this subject, I 
have been supposing that a rise in the value of raw 
materials would affect, in an equal proportion, all 
home commodities ; that if the effect on one were 
to raise it 10 per cent. ; it would raise all 10 per 
cent. : but as the value of commodities is very 
difllereutly made up of raw material and labour ; 
as some commodities, for instance all those made 
from the metals, would be unaffected by the rise 
of raw produce from the surface of the earth, it ia 
evident that there would be the greatest variety in 
the effects produced on the value of commodities, 
by a tax on i*aw produce. As far as this effect 



159 

was produced, it would stimulate or retard the ex- 
portation of particular commodities, and would 
undoubtedly be attended with the same inconve- 
nience that attends the taxing of commodities; it 
would destroy the natural relation between the 
value of each. Thus, the natural price of a hat, 
instead of being the same as a yard and a half of 
cloth, might only be of the value of a yard and a 
quarter, or it might be of the value of a yard and 
three quarters, and therefore rather a diflFerent di- 
rection might be given to foreign trade. All these 
inconveniences would not interfere with the value 
of the exports and imports; they would only 
prevent the very best distribution of the capital 
of the whole world, which is never so well regulat- 
ed, as when every commodity is freely allowed to 
settle at its natural price. 

Although then the rise in the price' of most of 
our own commodities, would for a time check ex- 
portation generally, and might permanently prevent 
the exportation of a few commodities, it could not 
materially interfere with foreign trade, and would 
not place us under any comparative disadvantage 
as far as regarded competition in foreign markets. 



CHAPTER VIIL* 

Taxes on Rent. 

A TAX on rent would affect rent only ; it would 
fall wholly on landlords, and could not be shifted 
to any class of consumers. The landlord could 
not raise his rent, because he would leave unaltered 
the difference between the produce obtained from 
the least productive land in cultivation, and that 
obtained from land of every other quality. Three 
sorts of land, No. 1, 2, and 3, are in cultivation, 
and yield respectively with the same labour 180, 
170, and 160 quarters of wheat; but No. 3 pays 
no rent, and is therefore untaxed : the rent then of 
No. 2 cannot be made to exceed the value of ten, 
nor No. 1, of twenty quarters. Such a tax could 
not raise the price of raw produce, because as the 
cultivator of No. 3 pays neither rent nor tax, he 
would in no way be enabled to raise the price of 
the commodity produced. A tax on rent would 
not discourage the cultivation of fresh land, for 
such land pays no rent, and would be untaxed. 
If No. 4 were taken into cultivation, and yielded 
150 quarters, no tax would be paid for such land; 
but it would create a rent of ten quarters on No. 3^ 

whiqli would then commence paying the tax, 

SI -^ ■ . 



162 

A tax on rent, as rent is constitated^ would dis- 
courage cultivation, because it would be a tax on the 
profits of the landlord. The term rent of land, as 
I have elsewhere observed, is applied to the whole 
amount of the value paid by the farmer to his land- 
lord, a part only of which is strictly rent. The 
buildings and fixtures, and other expenses paid for 
by the landlord, form strictly a part of the stock of 
the farm, and must have been furnished by the 
tenant, if not provided by the landlord. Rent is 
the sum paid to the landlord for the use of the land, 
and for the use of the land only. The further 
sum that is paid to him under the name of rent, is 
for the use of the buildings, &c., and- is really the 
profits of the landlord's stock. In taxing rent, as 
110 distinction would be made between that part 
paid for the use of the land, and that paid for the 
use of the landlord's stock, a portion of the tax 
Avould fall on the landlord's profits, and would 
therefore discourage cultivation, unless the price of 
raw produce rose. On that land, for the use of 
which no rent was paid, a compensation under that 
name might be given to the landlord for the use of 
his buildings. These buildings would not be 
erected, nor would raw produce be grown on such 
land, till the price at which it sold would not only 
paj for all the usual outgoings, but also for this 
additional one of the tax. This part of the tax 
does not fall on the landlord, nor on the farmer, but 
on the consumer of raw produce. 

There can be little, doubt, but that if a tax were 
laid on rent, landlords would soon find a way to 
discriminate between that which was paid to them 



163 

for the use of the land, and that which was paid 
for the use of the buildings, and the improvements 
which were made by the landlord's stock. The 
latter would either be called the rent of house and 
buildings, or in all new land taken into cultiva- 
tion such buildings and improvements would be 
made by the tenant, and not by the landlord. The 
landlord's capital might indeed be really employed 
for that purpose ; it might be nominally expended 
by the tenant, the landlord furnishing him with the 
means, either in the shape of a loan, or in the pur- 
chase of an annuity for the duration of the lease. 
Whether distinguished or not, there is a real diffe- 
rence between the nature of the compensations 
which the landlord receives for these different 
objects ; and it is quite certain, that a tax on the 
real rent of land falls wholly on the landlord, but 
that a tax on that remuneration which the landlord 
receives for the use of his stock expended on the 
farm, falls on the consumer of raw produce. If a 
tax were laid on rent, and no means of separating 
the remuneration now paid by the tenant to the 
landlord under the nameof rent were adopted, the 
tax, as far as it regarded the rent on the buildings 
and other fixtures, would never fall for any length 
of time on the landlord, but on the consumer. 
The capital expended on these buildings, &c., 
must afford the usual profits of stock ; but it would 
cease to afford this profit on the land last cultivated, 
if the expenses of those buildings, &c. did not fall 
on the tenant; and if they did, the tenant would 
then cease to make his usual profits of stock, unless 
ke could charge them on the consumer. 



CHAPTER IX 

Tithps. 

Tithes are a tax on the gross produce of the 
land, andj like taxes on raw produce, fall wholly 
on the consumer. They diifer from a tax on rent, 
inasmuch as they affect land which such a tax would 
riot reach; and raise the price of raw produce, 
which that tax would not alter. Lands of the 
worst quality, as well as of the best, pay tithes, 
and exactly in proportion to the quantity of pro- 
duce obtained from them ; tith.es are therefore an 
equal tax. 

If land of the last quality, or that which pays 
no rent, and which regulates the price of corn, 
yield a suflBcient quantity to give the farmer the 
usual profits of stock, when the price of wheat is 
4Z. per quarter, the price must rise to 4Z. 8s. before 
the same profits can be obtained after the tithes are 
imposed, because for every quarter of wheat the 
cultivator must pay eight shillings to the church. 

The only difference between tithes and taxes on 
raw produce, is, that one is a variable money tax, 
the other a fixed money tax. In a stationary state 
of society, where thjcre is neither increased nor 
diminished facility of producing corn, they will be 



166 

precisely the same in their effects ; for iu such a 
state corn will be at an invariable price, and the tax 
will therefore be also invariable. In either a re- 
trograde state, or in a state in which great improve- 
ments are made in agriculture, and where conse- 
quently raw produce will fall in value comparatively 
with other things, tithes will be a lighter tax than a 
permanent money tax; for if the price of corn 
should fall from 4/. to Si. the tax would fall from 
eight to six shillings. In a progressive state of 
society, yet without any marked improvements in 
agriculture, the price of corn would rise^ and tithes 
"Would be a heavier tax than a permanent money tax. 
If corn rose from 4L to 51. the tithes on the same 
land would advance from eight to ten shillings. 

Neither tithes nor a money tax will affect the 
nroney rent of landlords, but both will materially 
affect corn rents. We have already observed how 
a money tax operates on corn rents, and it is equally 
evident that a similar effect would be produced by 
tithes. If the lands, No. 1, 3, 3, respectively pro- 
duced 180, 170J and 160 quarters, the rents might 
he on No. 1, twenty quarters, and on No. 3, ten 
quarters ; but they would no longer preserve that 
proportion after the payment of tithes : for if a 
tenth be taken from each, the remaining produce 
will be 163, 153, 144, and consequently the corn 
rent of No. 1 will be reduced to eighteen, and that 
of No. 3 to nine quarters. But the price of corn 
would rise from 4Z. to 4Z. 8s. iO^d. ; for nine 
quarters are to 4Z. as ten quarters to 4*1. Ss, 10|<Z., 
and consequently the money rent would continue 



167 

luialtered ; for on No. 1 it would be 80Z.; and on 
No. 2, 40/. 

The chief objection against tithes is, that they 
are not a permanent and fixed tax, but increase in 
value, in proportion as the difficulty of producing 
corn increases. If those difficulties should make 
the price of corn 4Z. the tax is 8s, ^ if they should 
increase it to 51., the tax is 10s., and at 61., it is 
i2s. They not only rise in value, but they increase 
in amount : thus, when No. 1 was cultivated, the 
tax was only levied on 180 quarters ; when No. S 
was cultivated, it was levied on 180 xl70, or 350 
quarters; and when No. 3 was cultivated, on 
180 xl70 X160=510 quarters. Not only is the 
amount of the tax increased from 100,000 quarters, 
to SOOjOOO quarters, when the produce is increased: 
from one to two millions of quarters ; but, owing 
to the increased labour necessary to produce the 
second million, the relative value of raw produce 
is so advanced, that the S00,000 quarters may be, 
though only twice in quantity, yet in value three 
times that of the 100,000 quarters which were 
paid before. 

If an equal value were raised for the church by 
any other means, increasing in the same manner as 
tithes increase, proportionably with the difficulty 
of cultivation, the eifect would be the same. The 
church would be constantly obtaining an increased 
portion of the net produce of the land and labour 
of the country. In an improving state of society, 
the net produce of land is always, diminishing in 
proportion to its gross produce ; but it is from the 
net income of a country that all taxes are ultimately 



168 

paidj eitlier in a progressive or in a stationary 
country. A tax increasing with the gross income^ 
and falling on the net income, must necessarily be 
a very burdensome, and a very intolerable tax. 
Tithes are a tenth of the gross, and not of the net 
produce of the land, and therefore as society im- 
proves in wealth, they must, though the same pro- 
portion of the gross produce, become a larger and 
larger portion of the net produce. 

Tithes however may be considered as injurious 
tb landlords, inasmuch as they act as a bounty on 
importation, by taxing the growth of home corn, 
while the importation of foreign corn remains un- 
fettered. And if in order to relieve the landlords 
fiom the effects of the diminished demand for land, 
which such a bounty must encourage, imported corn 
were also taxed one tenth, and the produce paid to 
the state, no measure could be more fair and equi- 
table ; since whatever were paid to the state by 
tiiis tax, would go to diminish the other taxes which 
the expenses of government make necessary : but 
if such a tax were devoted only to increase the fund 
paid to the church, it might indeed on the whole in- 
crease the general mass of production, but it would 
diminish the portion of that mass allotted to the 
productive classes. 

If the trade of cloth were left perfectly free, our 
manufacturers might be able to sell cloth cheaper 
than we could import it, If a tax were laid on the 
home manufactuvcr, and not on the importer of 
cloth, capital might be injuriously driven from the 
manufacture of cloth to the manufacture of some 
other commodity, as it might then be imported 



169 

cheaper than it could be made at home. If import- 
ed cloth should also be taxed, cloth would again be 
manufactured at home. The consumer first bought 
cloth a,t home, because it was cheaper than foreign 
cloth ; he then bought foreign cloth, because it was 
cheaper tihtaxed than home cloth taxed-: he lastly 
bought it again at home, because it was cheaper 
^yhen both home and foreign cloth were taxed. It 
is in the last case that he pays the greatest price 
for his bloMi, 'l}ut all his additional payment is 
glaihed by the state. In the second case, he pays 
more than in t!.e first, but all he pays in addition 
is not received by the state, it is an increased price 
caused by difficulty of production, which is incurred, 
because the easiest means of production are taken 
aWiiy from us, by being fettered with a tax-, 






■V- - 



'■■'■(■ 



*)9 



CHAPTER X. 

Land- Tax, 

A LAND-TAX, levied in proportion to the rent 
of land, and varying Avitli every variation of rent, 
is in effect a tax on rent ; and as such a tax will not 
apply to that land vv^hicli yields no rent, nor to the 
produce of that capital which is employed on the 
land with a view to profit merely, and which never 
pays rent,, it will not in any way affect the price of 
i*a^ j^tod lit;?, but it will fall wholly on the land- 
loTds. In no respect would such a tax differ from 
a tax on rent. But if a land-tax he imposed on all 
cultivated land, however moderate that tax maybe, 
it will be a tax on produce, and will therefore raise 
the price of produce. If No. 3 be the land last 
cultivated, although it should pay no rent, it cannot, 
after the tax, be cultivated, and afford the general 
rjtte of profit, unless the price of produce rise to 
meet the tax. Either capital will be withheld 
from that employment until the price of corn shall 
have risen, in consequence of demand, sufficiently 
to afford the usual profit; or if already employed 
on such land, it will quit it, to seek a more advan- 
tageous employment. The tax cannot be removed 
to the landlord, for by the supposition he receives 



i72 

no rent. SiicTi a tax may be proportioned to the 
quality of the land and the abundance of its pro- 
duce, and then it ditfers in ho respect from tithes ; 
or it may be a fixed tax per acre on all land cul- 
tivated, whatever its quality may be. 

A land-tax of this latter description would be a 
very unequal tax, and would be contrary to ane of 
the four maxims with regard to taxes in general, to 
which, according to Adam SSmitli, all taxes should 
conform. The four maxims are as follow : 

i. ^' The subjects of every state ought to con- 
tribate towards the support of the govern- 
ment, as nearly as possible in proportion to 
their respective abilities. 
3. " The tax vv^hich each individual is bound to 
pay ought to be certain and not arbitrary. 

3. " Every tax ought to be levied at the time, or 
in the manner in which it is most likely to 
be convenient for the contributor to pay it. 

4. '^^ Every tax ought to be so contrived as both 
to take out and to keep out of the pockets of 
the people as little as possible, over and above 
\^hat it brings into the public treasury of the 
state." 

An equal land-tax, imposed indiscriminately and 
without any regard to the distinction of its quality, 
on all land cultivated, will raise the price of corn 
in proportion to the tax paid by the cultivator of 
the land of the worst quality. Lands of different 
quality, with the employment of the same capital, 
will yield very different quantities of raw produce. 
If on the land which yields a thousand quarters of 
corn with a given capital, a tax of iOOl. be laid, 



173 

corn will rise 2s. per quarter to compensate tlie 
faraier for the tax. But witii the same capital on 
land of a better qaalifcy, 2,000 quarters may be pro- 
<9uce<l, which at 2.i. a quarter advance, would give 
SOO/. ; the tax, however, bearing equally on both 
lands will. be iOOL on the belter as well as on the 
inferior, and consequently the consumer of corn 
will be taxed, not only to pay the exigencies of the 
state, but also to give to the cultivator of the better 
laud, lOOZ. per annum, during the period of his 
lease, and afterwards to raise the rent of the land- 
lord to that anaount. A tax of this description 
then would be contrary to the fourth maxim df 
Adam Smith, it would take out and keep out of the 
pockets of the people, more than what it brought 
.into the treasury of the state. The taille in France 
before the revolution, was a tax of this description; 
those lands only were taxed, which were held by 
an ignoble tenure, the price of raw produce rose in 
proportion to the tax, and therefore tliey whose 
lands were not taxed, were Jbenefited by the increase 
of their rent. Taxes on raw produce as well as 
tithes are free from this objection : they raise the 
price of raw produce, but tjiey take from each 
quality of laiid a contribution in proportion to its 
actual produce, and not in proportion to the pro- 
duce of that which is the least productive. 

From the peculiar view which Adam Smith took 
of rent, from his not having observed that much 
capital is expended in every country, on the land 
for which no rent is paid, he concluded that all 
taxes on the land, whether they were laid on the 
land itself in the form of land-tax or tithes, or on 



the produce of the land, or were taken from ;th(B> 
profits of the farmer, were all invariably paid by 
the landlord, and that he was in all cases the real 
contributor, although the tax was in gerjeraV 
nominally advanced by the tenant. " Taxes upon, 
the produce of the land,'' he says, "are in reality 
taxes upon the rent ; and though they may be original- 
ly advanced by the farmer, are fmaliy paid by tlie 
landlord. Wlien a certain portion of the product 
is to be paid away for a tax, the farmer computes 
as well as he can, what the value of tliis portion 
is, one year with another, likely to amount to, and 
lie Dlakes a proportionable abatement in the rent 
which he agrees to pay to the landlord.. There is 
«o farmer who does not compute before hand wliat 
the church tithe, which is a land-tax of this kind, 
is, one year with another, likely to amount to.'' 
It is undoubtedly true, tiiat the farmer does calculate 
bis probable outgoings of all descriptions, when 
agreeing with his landlord concerning the rent of 
his farm ; and if for the titiie paid to the churchy 
or for the tax on the produce of the land, he.^ere 
not compensated by a rise in the relative value of 
the produce of his farm, he would naturally deduct 
them from his rent. Eut this is precisely the 
question in dispute : whether he will eventually 
deduct them from his rent, or be compensated by a 
higher price of produce. For the reasons which 
liave been already given, I cannot have the least 
doubt but that they would raise the price of produce 
and consequently that Adam Smith has taken an 
incorrect view of this important question. 



Dr» Smitli's vievi''lBf tliis stiD|ect is probably tlie 
reason vvliy he has described " the tithe, and every 
other land-tax of this kind, under the appearance 
of perfect equality, as very unequal taxes ; a cer- 
tain portion of the produce being in different 
situations, equivalent to a very different portion of 
the rent." I have endeavoured to shew that such 
taxes do not fall with unequal weight on the cliirerent, 
classes of farmers or landlords, as they are both 
compensated by the rise of raw produce, and only 
contribute to the tax in proportion as they are con- 
sumers of raw produce. Inasmuch indeed as 
wages, and through wages, the rate of profits are . 
affected, landlords, instead of contributing their 
full share to such a tax, are the class peculiarly 
exempted. It is the profits of stock, from which 
that portion of the tax is derived which falls on. 
those labourers, who from the insufficiency of their 
funds, are incapable of paying taxes ; this portion 
is exclusively borne by all those whose income is^ 
derived from the employment of stock, and there- 
fore it in no degree affects landlords. 

It is not to be inferred from this view of tithes, 
Itrid taxes on the land and its produce, that they do 
not discourage cultivation. Every thing which 
raises the exchangeable value of commodities of 
any kind, which are in very general demand, tends 
to discourage both cultivation and production ; but 
this is an evil inseparable from all taxation, and is 
not confined to the particular taxes of which we 
are now speaking. 

This may be considered indeed as the unavoid- 
able disadvantage attending all taxes received ami 



i7Q 

expanded by the slate. Every new tax becomes a 
new charge on prodnction, and raises natural price. 
A portiun of the labour of the country winch was 
before at tlie' disposal of the contributor to the' tax, 
is placed at the disposal of the state. This portion 
inay become solai-ge, that sufficient surplus produce 
may not be left to stimulate the exertions of those, 
who usually augiiient by their savings the capital of 
the state. Taxation has happily never yet in any 
free country been carried so far as constantly from 
year to year to diminish its capital. Such a state 
of taxation could not be long endured ; or if ehdured, 
it would' be constantly absorbing so much of the 
annual produce of the country as to occasion the 
most extensive scene of misery^ famine, and depo- 
pulation. 

•'• A land tax/' says Adam Smith, ^' which like 
tijat of Great Britain, is assessed upon each district 
according to a certain invarialyie canon, though it . 
should be ecjual at the tisne of its first establishment, 
necessarily becomes unequal /"in process :6f tim% 
accord.ing to the unequal degrees of improvement 
or neglect in the cultivation of, tlie dilTerent parts of 
the country. In Kngland the valuation according 
to which-the cliil'tirerit counties niritlpajinsli^s:^*^ 
assessed to the land-tax. by the 4th William and ' 
Mary, was very unequal^ e^yen at its firsteslablish- 
ment. This tax, therefore, so far biTends against 
the flrgt of the four iimxi^s /al-Mive.; incntioned. .-M 
is perfectly agreeable to the other three. , It i«:pei'- 
fectly cerhiin. TliC time of payment for the tax 
being.the sanije.as that fm- the rent, is as inconvenient 
as it.caa be to 'thfe cbiUributor. Though the lafttl- 



■ 177 

lord is in all cases the real contributor, the tax is 
commonly advanced by the tenant, to whom the 
landlord is obliged to allow it in the payment of 
the rent." 

If the tax be shifted by the tenant not on the 
landlord but on the consumer, then if it be not 
unequal at first, it can never become so ; for the 
price of produce has been at once raised in propor- 
tion to the tax, and will afterwards vary no more 
on that account. It may offend if unequal, as I 
have attempted to shew that it will, against the 
fourth maxim above mentioned, but it will not 
offend against the first. It may take more out of 
the pockets of the people than it brings into the 
public treasury of the state, but it will not fall 
unequally on any particular class of contributors. 
M. Say appears to me to have mistaken the nature 
and effects of the English land-tax, when he says, 
" Many persons attribute to this fixed valuation, 
the great prosperity of English agriculture. That 
it has very much contributed to it there can be no 
doubt. But what should we say to a government, 
which, addressing itself to a small trader, should 
hold this language : ^ With a small capital you are 
carrying on a limited trade, and your direct con- 
tribution is in consequence very small. Borrow, 
and accumulate capital ; extend your trade, so that 
it may procure you immense profits ; yet you shall 
never pay a greater contribution. Moreover, when 
your successors shall inherit your profits, and shall 
have further increased them, they shall not be 
valued higher to them than they are to you ; and 
S3 



178 

your successors shall not bear a greater portion bf 
the public burdens.' 

" Without doubt this would be a great encourage- 
ment given to manufactures and trade ; but would 
it be just ? Could not their advancement be obtain- 
ed at any other price? In England itself, has not 
manufacturing and commercial industry made even 
greater progress, since the same period, without 
being distinguished with so much partiality? A 
landlord by his assiduity, economy and skill, in- 
creases his annual revenue by 5000 francs. If the 
state claim of him the tifth part of his augmented 
income, will tliere not remain 4000 francs of in- 
crease to stimulate his further exertions?'^ 

If Mr. Say's suggestion were followed, and 
the state were to claim the iifth part of the aug- 
mented income of the farmer, it would be a partial 
tax, acting on the farmer's profits, and not affecting 
the profits of other employments. The tax would 
be paid by all lands, by those which yielded 
scantily as welLas by those which yielded abundant- 
ly ; and on some lands there could be no compen- 
sation for it by deduction from rent, for no rent is 
paid. A partial tax on profits never falls on the 
trade on which it is laid, for the trader will either 
quit his employment, or remunerate himself for the 
tax. Now those who pay no rent could be re- 
couipenced only by a rise in the price of produce, ' 
and thus would M. Say's proposed tax fall on the 
consumer, and not either on the landlord or farmer. 

If the proposed tax were increased in propor- 
tion to the increased quantity, or value, of the gross 
produce obtained from the land, it would differ in 



179 

nothing from tithes, and would equally be transferred 
to the consumer. Whether then it fell on the gross 
or on the net produce of land, it would be equally 
a tax on consumption, and would only affect the 
landlord and farmer in the same way as other taxes 
on raw produce. .. - 

If no tax whatever had been laid on the land, 
and the same sum had been raised by any other 
means, agriculture would have flourished at least 
as well as it has done ; for it is impossible that any 
tax on land can be an encouragement to agriculture ; 
a moderate tax may not, and probably does not, 
greatly prevent, but it cannot encourage produc- 
tion. The English government has held no such 
language as M. Say has supposed. It did not 
promise to exempt the agricultural class and their 
successors from all future taxation, and to raise the 
further supplies which the state might require, from 
the other classes of society ; it said only, " in 
this mode we will no further burthen the land ; but 
we retain to ourselves the most perfect liberty of 
making you pay, under some other form, your full 
quota to the future exigencies of the state." 

Speaking of taxes in kind, or a tax of a certain 
proportion of the produce, which is precisely the 
same as tithes, M. Say says, " This mode of taxa- 
tion appears to be the most equitable ; there is how- 
ever none which is less so : it totally leaves out of 
consideration the advances made by the producer ; 
it is proportioned to the gross, and not to the net 
revenue. Two agriculturists cultivate different 
kinds of raw produce : one cultivates corn on 
middling land, his expenses amounting annually 



ou an average to 8000 francs ; the raw produce 
from his lands sells for 12^000 francs ; he has then 
a net revenue of 4000 francs. 

** His neighbour has pasture or wood land, which 
brings in every year a like sum of 12,000 francs, 
but his expenses amount only to 2000 francs. lie 
has therefore on an average a net revenue of 10,000 
francs. 

"A law ordains that a twelfth of the produce 

of all the fruits of the earth be levied in kind, 

whatever they may be. From the first is taken 

in consequence of the law, corn of the value of 

1000 francs and from the second, hay, cattle, or 

wood, of the same value of 1000 francs. What 

has happened ? From the one, a quarter of his 

, net income, 4000 francs, has been taken ; from the 

other, whose income was 10,000 francs a tenth 

only has been taken. Income is the net profit 

which remains after replacing the capital exactly 

in its former state. Has a merchant an income 

equal to all the sales which he makes in the course 

of a year? certainly not; his income only amounts 

to the excess of his sales above his advances, and 

it is on this excess only that taxes on income should 

fall." 

M. Say's error in the above passage lies in sup- 
posing that because the value of the produce of 
one of these two farms, after re-instating the capital, 
is greater than the value of the produce of the 
other, on that account the net income of the cul- 
tivators will diifer by the same amount. M. Say 
has wholly omitted the consideration of the differ- 
ent amount of rent, which these cultivators would 



18i 

have to pay. There cannot be two rates of profit 
in the same employment^ and therefore when pro- 
duce is in different proportions to capital, it is the 
rent which will differ, and not the profit. Upon 
what pretence would one man with a capital of 
gOOO francs, be allowed to obtain a net profit of 
10,000 francs from its employment, whilst another 
with a Capital of 8000 francs would only obtain 
4000 francs ? Let M. Say make a due allowance 
for rent ; let him further allow for the effect which 
such a tax would have on the prices of these diffe- 
rent kinds of raw produce, and he will then perceive 
that it is not an unequal tax, and further that the 
producers themselves will no otherwise contribute 
to it, than any other class of consumers. 



Jr^ 



.tt'^'r 


■i*' V : 


--^s 


-Vf 


m.K'^: 





CHAPTER XL 

Taxes on Gold, 

The rise in the price of commodities, in con- 
sequence of taxation or of difficulty of production, 
will in all cases ultimately ensue ; but the duration 
of the interval, before the market price of com- 
modities conforms to their natural price, must 
depend on the nature of the commodity, and on the 
facility with which it can be reduced in quantity. 
If the quantity of the commodity taxed could not 
be diminished, if the capital of the farmer or of 
the hatter for instance, could not be withdrawn to 
other employments, it would be of no consequence 
that their profits were reduced below the general 
level by means of a tax ; unless the demand for 
their commodities should increase, they would 
never be able to elevate the market price of corn 
and hats up to the increased natural price. Their 
threats to leave their employments, and remove 
their capitals to more favoured trades, would be 
treated as an idle menance which could not be car- 
ried into effect ; and consequently the price would 
iiot be raised by diminished production. Com- 
modities however of all descriptions can be reduced 
in quantity, and capital can be removed from trades 



184 

tvbicli are less profitable to those which are more 
so, but with different degrees of rapidity. In pro* 
portion as the supply of a particular commodity 
can be more easily reduced, the price of it will 
more quickly rise after the difficulty of its produc- 
tion has been increased by taxation, or by any other 
means. Corn being a commodity indispensably 
necessary to every one, little effect will be produced 
on the demand for it in consequence of a tax, and 
therefore the supply could not be long excessive, 
even if the producers had great difficulty in remov- 
ing their capitals from the land ; the price of corn 
therefore, will speedily be raised by taxation, and 
the farmer will be enabled to transfer the tax from 
Iiiniself to the consumer. 

,".If the mines which supply us with gold were in 
this country, and if gold were taxed, it could not 
rise in relative value to other things till its quantity 
were reduced. This would be more particularly 
the case, if gold were exclusively used for money. 
It is true that the least productive mines, those 
which paid no rent, could no longer be worked, as 
tlicy could not afford the general rate of profits till 
the relative value of gold rose, by a sum equal to 
the tax. The quantity of gold, and therefore the 
ipiantity of money would be slonly reduced ; it 
would be a little diminished in one year, a little 
more in another, and finally its value would be 
raised in proportion to the tax; but in the interval, 
the proprietors or holders, as they Avould pay the 
tax, woiild be the sufferers, and not those who used 
money. If out of every 1000 quarters of wheat 
in the country, and every 1000 produced in future, 



185 '^ 

government should exact iOO quarters as a tax, the 
remaining 900 quarters would exchange for the 
same quantity of other commodities that 1000 did 
before, but if the same thing took place with res- 
pect to gold, if of every 1000/. money now in the 
country, or in future to be brought into it, govern- 
ment could exact 100/. as a tax, the remaining 900L 
would purchase very little more than 900Z. purchas- 
ed before. The tax would fall upon him, whose 
property consisted of money, and would continue 
to do so till its quantity were reduced in proportion 
to the increased cost of its production caused by 
the tax. 

This perhaps would be more particularly the 
case with respect to a metal used for money, than 
any other commodity, because- the demand for 
money is not for a definite quantity, as is the de- 
mand for clothes, or for food. The demand for 
money is regulated entirely by its value, and its 
value by its quantity, if gold were of double the 
value, half the quantity would perform the same 
functions in circiiLition, and if it were of half the 
value^ double the quantity would be required. If 
the market value of corn be increased one tenth by 
taxation, or by difficulty of production, it is doubt- 
ful, whether any effect whatever Avould be produ- 
ced on the quantity consumed, because every man's 
want is for a definite quantity, and therefore, if he 
has the means of purchasing, he will continue to 
consume as before ; . but for money, the demand is 
exactly proportioned to its value. No man could 
consume twice the quantity of corn, which is usual- 
ly necessary for his support; but every man pur- 
24 



186 

cliasing and selling only the same quantity of 
goods, may be obliged to employ twice, thrice, or 
any number of times the same quantity of money. 

The argument which I have just been using, ap- 
plies only to those states of society in which the 
precious metals are used for money, find where pa- 
per credit is not established. The metal gold like 
all other commodities, has its value in the market 
ultimately regulated by the comparative facility or 
difficulty of producing it: and although from its 
durable nature, and from the diificulty of reducing 
its quantity, it does not readily bend to variations 
in its market value, yet that difBculty is much in- 
creased from the circumstance of its being used as 
money. If tlie quantity of gold in the market for 
the purpose of commerce only, were 10,000 ounces, 
and the consumption in our manufactures were 
gOOO ounces annually, it might be raised one fourth, 
or S5 per cent, in its value, in one year, by with- 
holding the annual supply. But if in consequence of 
of its being used as money, the quantity employed 
Av ere 100,000 ounces, it would not be raised one 
fourth in value in less than ten years. As money 
made of paper may be readily reduced in quantity, 
its value, though its standard were gold, would be 
increased as rapidly as that of the metal itself 
would be increased if it had no connexion what- 
ever with money. 

If gold V. ere tlie produce of one country only, 
and it were used universally for money, a very con- 
siderable tax might be imposed on it, which would 
not fall on any country, except in proportion as 
they used it in manufactures, and for utensils ; upon 



187 

that portion which was used for money, though a 
large tax might be received, nobody would pay it. 
This is a quality peculiar to money. All other 
commodities of which there exists a limited quanti- 
ty, and which cannot be increased by competition, 
are dependent for their value, on the tastes, the car 
price, and the power of purchasers ; but money is 
a commodity which no country has anj wish or ne- 
cessity to increase : no more advantage results from 
using twenty millions, than from using ten millions 
of currency. A country might have a monopoly of 
silk, or of wine, and yet the prices of silks and wine 
might fall, because from caprice or fashion, or taste, 
cloth and brandy might be preferred, and substitut- 
ed ; the same effect might in a degree take place 
with gold, as far as its use is. confined to manufac- 
tures ; but while money is the general medium 
of exchange, the demand for it is never a matter 
of choice, but always of necessity ; you must take 
it in exchange for your goods, and therefore there 
are no limits to the quantity which may be forced 
on you by foreign trade, if it fall in value ; and no 
reduction to which you must not submit, if it rise. 
You may indeed substitute paper money, but by 
this you do not, and cannot lessen the quantity of 
money ; it is only by the rise of the price of com- 
modities, that you can prevent them from being 
exported from a country where they are purchased 
with little money, to a country where they can be 
sold for more, and this rise can only be effected by 
an importation of metalic money from abroad, or 
by the creation or addition of paper money at home. 
If then the king of Spain, supposing him to be in 



183' 

exclusive possession of the mines, and gold alone 
to be used for money, were to lay a considerable 
tax on gold, he would very much raise its natural 
value ; and as its market value in Europe is 
ultimately regulated by its natural value in Spanish 
America, more commodities would be given hy 
Europe for a given quantity of gold. But the same 
quantity of gold would not be produced in America, 
as its value would only be increased in proportion 
to the diminution of quantity consequent on its in- 
creased cost of production. No more goods then 
would be obtained in America, in exchange for all 
their gold exported, than before ; and it may ])e 
asked, where then would be the benefit to Spain 
and her colonies ? The benefit would be this, that 
if less gold were produced, less capital would be 
employed in producing; it; the same value of goods 
from Europe would be imported by the employ- 
ment of the smaller capital, that was before obtained 
by the employment of the larger ; and therefore 
all the productions obtained by the employment of 
the capital withdrawn from the mines, would be a 
benefit which Spain would derive from the imposi- 
tion of the tax, and which she could not obtain in 
such abundance, or with such certainty, by possess- 
ing the monopoly of any other commodity whatever. 
From such a tax, as far as money was concerned, 
the nations of Europe would suffer no injury what- 
ever; they would have the same quantity of goods, 
and consequently the same means of enjoyment as 
before, but these goods would be circulated with a 
less quantity of money. 



189 

If in consequence of the tax, only one tenth ot 
the present quantity of gold were obtained from 
the mines, that tenth would be*of equal value witU 
the ten tenths now produced. But the king of 
Spain is not exclusively in possession of the mines 
of the precious metals ; and if he were, his 
advantage from their possession, and the power of 
taxation, would be very much reduced by the limita- 
tion of demand and consumption in Europe, in con- 
sequence of the universal substitution, in a greater 
or less degree, of paper money. The agreement 
of the market and natural prices of all commodities, 
depends at all times on the facility with which the 
supply can be increased or diminished. In the 
case of gold, houses, and labour, as well as many 
other things, this effect cannot, under some circum- 
stances, be speedily produced. But it is different 
with those commodities which are consumed and 
reproduced from year to year, such as hats, shoes, 
cornj and cloth ; they may be reduced if necessary, 
and the interval cannot be long before the supply 
is contracted in proportion to the increased charge 
of producing them. 

A tax on raw produce from the surface of the 
earth, will, as we have s^en,. fall on the consumer, 
and will in no way affect rent ; unless, by diminish- 
ing the funds for the maintenance of labour, it 
lowers wages, reduces the population, and dimi- 
nishes the demand for corn. But a tax on the pro- 
duce of gold mines, must, by enhancing the value of 
that metal, necessarily reduce the demand for it, and 
must therefore necessarily displace capital from the 
employment to which it was applied. Notwith- 



standing then, that Spain would derive all the 
benefits which I have stated from a tax on gold, 
the proprietors of those mines from which capital 
was withdrawn would lose all their rent. This 
would be a loss to individuals, but not a national 
loss j rent being not a creation, but merely a transfer 
of wealth; the king of Spain, and the proprietors 
of the mines which continued to be Worked, would 
together receive not only all that the liberated 
capital produced, but all that the other proprietors 
lost. 

Suppose the mines of the 1st, Sd, and. 3d qua- 
lity to be worked, and to produce respectively 100, 
80, and 70 pounds weight of gold, and therefore 
the rent of No. 1 to be thirty pounds, and that of 
No. 2 ten pounds. Suppose now the tax to be se- 
venty pounds of gold per anniUn on each mine* 
worked; and consequently that No. 1 alone could 
be profitably worked ; it is evident that all rent 
would immediately disappear. Before the imposi- - 
tion of the tax, out of the 100 pounds produced on 
No. 1, a rent was paid of thirty pounds, and the 
worker of the mine retained seventy, a sum equal 
to the produce of the least productive mine. The 
value then of what remains to the capitalist of the 
mine No. 1, must be the same as before, or he would 
not obtain the common profits of stock ; and conse- 
quently, after paying seventy out of his 100 pounds 
for tax, the value of the remaining thirty must be as 
great as seventy were before, and therefore the va- 
lue of the whole hundred as great as S33 pounds 
before. Its value might be higher, but it could not 
be lower, or even this mine would cease to be 



191 

worked. Being a monopolised couimodity, it could 
exceed its natural value, and then it would pay a 
rent equal to that excess ; but no funds would be 
employed in the mine, if it v/ere below this value. 
In return for one third of the labour and capital 
employed in the mines, Spain would obtain as 
much gold as would exchange for the same, or 
very nearly the saine, quantity of commodities as 
before. She would be richer by the produce of the 
two thirds liberated from the mines. If the value 
of the 100 pounds of gold should be equal to that 
of the 2o0 pounds extracted before ; the king of 
Spain's portion, his seventy pounds, would be equal 
to 175 at the former value: a small part of the 
king's tax only would fall on his own subjects, the 
greater part being obtained by the better distribu- 
tion of capital. 

The account of Spain would stand thus : — 

Formerly produced: 

Gold 250 pounds, of the value of (suppose) 10,000 yards of 

cloth. 

J^ow produced: 

By the two capitalists who quitted the) 5,600 yards of 

mines, the value of 140 pounds of gold, or 3 cloth. 
By the capitalist who works the mine. No. 1,"^ 

thirty pounds of gold increased in value, i 5,000 yards of 

a^ one to two and a half, and therefore C cloth. 

now of the value of . ,,. ..... J 

Tax to the king severity pounds, now of the ^ 7,000 yards of 

value of » 3 cloth. 

15,600 



49^ 

Of the 7000 received by the king, the people of 
Spain would contribute only 1400, and 5600 would 
be pure gain, effected by the liberated capital. 

If the tax, instead of being a fixed sum per mine 
worked, were a certain portion of its produce, the 
quantity would not be reduced in consequence. If 
a half, a fourth, or a third of each mine were taken 
for the tax, it would nevertheless be the interest of 
the proprietors to make their mines yield as abun- 
dantly as before : but if the quantity were not redu- 
ced, but only a part of it transferred from the pro- 
prietor to the king, its value would not rise ; the tax 
would fall on the people of the colonies, and no 
advantage would be gained. A tax of this kind 
would have the effect that Adam Smith supposes 
taxes on raw produce would have on the rent of 
land—it would fall entirely on the rent of the mine. 
If pushed a little farther, the tax would not only ab- 
sorb the whole rent, but would deprive the worker 
of the mine of the common profits of stock, and he 
would consequently withdraw his capital from the 
production of gold. If still further extended, the 
rent of still better mines would be absorbed, find 
capital would be further withdrawn; and thus the 
quantity would be continually reduced, and its va- 
lue raised, and the same effects would take place as 
we have already pointed out; a part of the tax 
would be paid by the people of ihe Spanish colo- 
nies, and the other part would be a new creation of 
produce, by increasing the power of the instrument 
used as a medium of exchange. Taxes on gold 
are of two kinds, one on the actual quantity of 
gold in circulation, the other on the quantity 



193 

that is annually produced from the mines. Both 
have a tendency to reduce the quantity, and to raise 
the value of gold ; but by neither will its value be 
raised till the quantity is reduced, and therefore 
such taxes will fall for a time, until the supply is 
diminished, on the proprietors of money, but ulti- 
mately they will be paid by the owner of the mine 
in the reduction of rent, and by the purchasers of 
that portion of gold, which is used as a commodity 
contributing to the enjoyments of mankind, and not 
set apart exclusively for a circulating medium. 



^3 



CHAPTER XIT. 

Taxes on Houses, 

There are also other commodities besides gold 
which caiiDot be speedily reduced in quantity ; any 
tax on which will therefore fall on the proprietor, 
if the increase of price should lessen the demand. 

Taxes on houses are of this description j though 
laid on the occupier, they will frequently fall by a 
diminution of rent on the landlord. The produce 
of the land is consumed and reproduced from year 
to year, and so are many other commodities ; as 
they may therefore be speedily brought to a level 
with the demand, they cannot long exceed their 
natural price. But as a tax on houses may be con- 
sidered in the light of an additional rent paid by 
the tenant, its tendency will be to diminish the 
demand for houses of the same annual rent, 
without diminishing their supply. Rent will there- 
fore fall, and a part of the tax wijii be paid indirectly 
by the landlord. .. « 

"The rent of a house," says Adam Smith, 
" may be distinguished into two parts, of which 
the one may very properly be called the building 
rent, the other is commonly called the ground rent. 
The building rent is the interest or profit of the 



196 

t 

capital expended in building the house. In order 
to put the trade of a builder upon a level with other 
trades, it is necessary that this rent should be suffi- 
cient first to pay the same interest which he would 
have got for his capital, if he had lent it upon good 
security; and secondly, to keep the liouse in con- 
stant repair, or what comes to the same thing, to 
replace within a certain term of years the capital 
which had been employed in building it." ^^ If 
in proportion to the interest of money, the trade of 
the builder affords at any time a much greater profit 
than this, it wdll soon draw so much capital from 
other trades, as will reduce the profit to its proper 
level. If it affords at any time much less than this. 
Other trades will soon draw so much capital from 
it as will again raise that profit. Whatever part 
of the whole rent of a house is over and above 
what is sufficient for affording this reasonable profit, 
iiaturally goes to the ground rent; and where the 
owner of the ground, and the owner of the building 
are two different persons, it is in most cases com- 
pletely paid to tlie former. In country houses, at 
d distance from any great town, where there is a 
plentiful choice of ground, the ground rent is scarce- 
ly any thing, or no more than what the space upon 
which the house stands, would pay if employed in 
agriculture. In country villas, in the neighbour- 
hood of some great tow n, it is sometimes a good 
deal higher, and the peculiar conveniency, or beauty 
of situation, is there frequently very highly paid 
for. Ground rents are generally Inghest in the 
capital, and in those particular parts of it, wiierc 
there happens to be the greatest demand for Iiouses. 



197 

whatever be tlie reason for that demandj whether 
for trade and business, for pleasure and society, or 
for mere vanity and fashion." A tax on the rent 
of houses may either fall on the occupier, on the 
ground landlord, or on the building landlord. In 
ordinary cases it may be presumed, that the whole 
tax would be paid both immediately and finally by 
the occupier. 

* -If the tax be moderate, and the circumstances 
of the country such, that it is either stationary or 
advancing, there would be little motive for the 
occupier of a house to content himself with one of 
^a^%orse description. But if the ta^ be high, or 
any other circumstances should diminish the demand, 
for houses, the landlord's income would fall, for 
the occupier would be partly compensated for the 
tax by a diminution of rent. It is, however, diffi- 
cult to say, in what proportions that part of the tax, 
which was saved by the occupier by a fall of rent, 
Would fall on the building rent and the ground 
rent- It is probable, that in the first instance, 
botli would be aifected but as houses are, though 
slowly, yet certainly perishable, and as no more 
would be built, till the profits of the builder were 
restored to the general level, building rent, would, 
after an interval, be restored to its Natural price. 
As the builder receives rent only whilst the building 
endures, he could pay no part of the tax, under 
the most disastrous circumstances, for any longer 
period. 

The payment of this tax, then, would ultimately 
falll on the occupier and ground landlord, but ^^ in 
what proportion^ this final payment would be divid- 



198 

ed between them/'' says Adam Smith, " it is not 
perhaps very easy to ascertain. The division 
Avould probably be very different in different cir- 
cumstances, and a tax of this kind might, according 
to those different circumstances, affect very unequal- 
ly both the inhabitant of the house, and the owner 
of the ground*^'* 

Adam Smith considers ground rents as peculiarly 
fit subjects for taxation. *^ Both ground rents, and 
the ordinary rent of land," he says, " are a species 
of revenue, which the owner in many cases enjoys, 
without any care or attention of his ov. n. Though 
a part of this revenue should be taken from him, 
in order to defray the expenses of the state, no 
discouragement will thereby be given to any sort 
of industry. The annual produce of the land and 
labour of the society, the real wealth and revenue 
of the great body of the people, might be the same 
after such a tax as before. Ground rents, and the 
ordinary rent of land, are, therefore, perhaps the 
species of revenue, which can best bear to have a 
peculiar tax imposed upon them.'' It must be 
admitted that the effects of these taxes would be 
such as Adam Smith lias described ; but it would 
surely be very unjust, to tax exclusively the revenue 
of any particular class of a community. The 
burdens of the state should be borne by all in 
proportion to their means : this is one of the four 
maxims mentioned by Adam Smith, which should 
govern all taxation. Rent often belongs to those 
who after many years of toil, have realised their 

Book V. ch. ii-. 



199 

gains, and expended their fortunes in the purchase 
of land ; and it certainly would be an infringement 
of that principle whicli should ever be held sacred, 
the security of property, to subject it to unequal 
taxation. It is to be lamented, that the duty by 
stamps, with which the transfer of landed property 
is loaded, materially impedes the conveyance of it 
into those hands, where it would probably be made 
most productive. And if it be considered, that 
land, regarded as a fit subject for exclusive taxation, 
would not only be reduced in price, to compensate 
for the risk of that taxation, but in proportion to 
the indefinite nature and uncertain value of the risk, 
would become a fit subject for speculations, partake 
ing more of the nature of gambling, tlian of sober 
trade, it will appear probable, that the hands into 
whicli land would in that case be most apt to fall, 
would be the hands of those, who possess more of 
the qualities of the gambler, than of the qualities 
of the sober-rainded proprietor, who is likely in 
employ his land to the greatest advantage. 



CHAPTER XIII. 

Taxes on Profits. 

Taxes on those coramodities, wliicli are gene- 
rally denominated luxuries, fall on those only who 
make use of them. A. tax on wine is paid by the 
consumer of wine. A tax on pleasure horses, or 
on coaches, is paid by those who provide for them- 
selycjs such enjoyments, and in exact proportion as 
they provide them. But taxes on necessaries do 
not affect the consumers of necessaries, in propor- 
tion to the quantity that may be consumed by them, 
but often in a mnch higher proportion. A tax on 
corn^ we have observed, not only affects a manufac- 
turer in the proportion that he and his family may 
consume corn, but it alters the rate of profits of 
stock, and therefore also affects his income. What- 
ever raises the wages of labour, lowers the profitg 
of stock ; therefore every tax on any commodity 
consumed by the labourer, has a tendency to lower 
the rate of profits. 

A tax on hats will raise the price of hats ; a 
tax on shoesf the price of shoes ; if this were notj 
the case, the tax would be finally paid by the 
manufacturer ; h is profit s would be reduced below 
the g;eneral level, and he wo uld c|uit his trade. A i 



202 

partial tax on profits will raise the price of the 
commodity on which it falls : a tax, for example? 
oil the profits of the hatter, would raise the price 
of hats ; for if his profits were taxed, ami net those 
of any other trade, his profits, unless he raised the 
price of his hats, would he helow the genei-al rate 
of profits, and he would. quit his employment for 
another. 

In the same manner a tax on the profits of the 
farmer would raise the price of corn ; a tax on the 
profits of the clothier, the price of cloth; and if a 
tax in proportion to profits were Jaid on all trades, 
every commodity would be raised in price. But if 
the miuej which supplied us with the- standard of 
our money, were in this country, and the profits of 
the miner were also taxed, the price of no commo-^ 
dity would rise, each man would give an equal 
proportion of his income, and every thing would be 
as before. 

If money be not taxed, and therefore be permitt- 
ed to preserve its value, whilst every thing else is 
taxed, alii d is raised in value, the hatter, the farmer, 
and clothier, each employing the same capitals, and 
obtaining the same profits, will pay the same 
amount of tax. If the tax be 100/., the hats, the 
cloth, and the corn, will each be increased in value 
lOOZ. If the hatter gain by his hats llOOZ., instead 
of lOOOZ., be will pay 100/. to government for the 
tax ; and therefore will still have 1000/. to lay out 
on. goods for his own consumption. But as the 
cloth, corn, and all other commodities, will be 
raised in price from the same cause, he will not 
obtain mor^e. foijiis,.1000/. than hejjsfw^g^btained 



20S 

for 910/.J and thus will he contribute by his dimi- 
nished expenditure to the exigencies of the state ; he 
will, by the payment of the tax, have placed a por- 
tion of the produce of the land and labour of the 
country at the disposal of government, instead of 
using, that portion himself. If instead of expend- 
ing his lOOOZ., he adds it to his capital, he will tlnd 
in the rise of wages, and in the increased cost of 
the raw material and machinery, that his saving of 
1000/. does not amount to more than a saving of 
910/. amounted to before. 

If money be taxed, or if by any other cause its 
value be altered, and all commodities remain 
precisely at the same price as before, the profits of 
the manufacturer and farmer will also be the same 
as before, they will continue to be 1000/. ; and as 
they will each have to pay 100/. to government, 
they will retain only 900/., which will give them a 
less command over the produce of the land and 
labour of the country, whether they expend it in 
productive or unproductive labour. Precisely 
what they lose, government will gain. In the first 
case the contributor to the tax would, for 1000/., 
have as great a quantity of goods as he before had 
for 910/. ; in the second, he would have only as 
much as he had before for 900/. This proceeds from, 
the difference ia the amount of the tax ; in the first 
case it is only an eleventh of his income, in the 
second it is a tenth ; money in the two cases being 
of a different value. 

But although, if money be not taxed, and do not 
alter in value, all commodities will rise in price, 
they will not rise in the same proportion j they 



will not after the tax bear the same relative value 
to each other which they did before the tax. In a 
forraer part of this work, we discussed the effects 
of the division of capital into fixed and circulating, 
or rather into durable and perishable capital, on 
the prices of commodities. We shewed that two 
manufacturers might employ precisely the same 
amount of capital, and might derivefrom it precisely 
the same amount of profits, but that they would 
sell their commodities for very different sums of 
money, according as the capitals they employed 
were rapidly, or slowly, consumed and reproduced. 
The one might sell his goods for 4000/., the other 
for 10,000Z., and they might both employ 10,000/. 
of capital, and obtain 20 per cent, profit, or ^000/. 
The capital of one might consist for example of 
wool, circulating capital, to be reproduced, and 
8000Z. fixed, in buildings and machinery; the 
capital of the other on the contrary might consist 
of 8000/. of circulating, and of only 2000/. fixed 
capital in machinery and buildings. Now if each 
of these persons were to be taxed 10 per cent, on 
his income, or 200/., the one, to make his business 
yield him the general rate of profit, must raise his 
goods from 10,000/. to 10,200/. ; the other would 
also be obliged to raise the price of his goods from 
4000/. to 4200/. Before the tax, the goods sold 
by one of these manufacturers were 2§ times more 
valuable than the goods of the other ; after the tax 
they will be 2.42 times more valuable : the one 
kind will have risen 2 percent.; the other 5 per 
cent.: consequently a tax upon income, whilst 
money continued unaltered in value, would alter 



m5 

the relative prices and value of coinmoditieg. 
This is true, if the tax instead of being laid on the 
profits were laid on the commodities themselves : 
provided they were taxed in proportion to the 
Value of the capital employed on their production, 
they would rise equally, whatever might be their 
value, and therefore they would not preserve the 
same proportion as before. A commodity, which 
rose from ten to eleven thousand pounds, would 
not bear the same relation as before, to another 
which rose from 2 to 3000^. If under these cir- 
cumstances money rose in value, from whatever 
cause it might proceed, it would not aftect the 
prices of commodities in the same proportion. 
The same cause which would lower the price of 
one from 10,S00/. to 10,000Z. or less than 2 per 
cent., would lower the price of the other from 
4200/. to 4000Z. or 4f per cent. If they fell in 
any different proportion, profits would not be equal ; 
for to make them equal, when the price of the first 
commodity was 10^000/., the price of tlie second 
should be 4000Z. ; and when the price of the first 
was 10,200/., the price of the other should be 
4200/. 

The consideration of this fact will lead to the 
understanding of a very important principle, which 
I believe has never been adverted to. It is this; 
that in a country where no taxation subsists, the 
alteration in the value of money arising from scarcity 
or abundance will operate in an equal proportion 
on the prices of all commodities ; that if a com- 
modity of 1000/. value rise to 1200/., or fall to 
800/,, a commodity of 10,000/. value will rise to 



S06 

12,000?. or fall to 8OOOI. ; but in a country wliere 
prices are artificially raised hy taxaaoh^ the abund- 
ance of money from an influx, or the exportation 
and consequent scarcity of it from foreign demand, 
will not operate in the same proportion on thft 
prices of all commodities ; some it will raise or 
lower 5, 6, or 12 per cent., others 3, 4, or 7 per 
cent. If a £ountry were not taxe<l, and money 
should fall in value, its abundance in every market 
would produce similar effects in each. If meat 
rose 20 per cent., bread, beer, shoes, labour, and 
every commodity, would also rise 20 per cent. ; it 
is necessary they should do so, to secure to eacli 
trade the same rate of profits. But this is no 
longer true when any of these commodities is 
taxed ; if in that case they should all rise in pro- 
portion to tlie fall in the value of money, profits 
would be rendered unequal ; in the case of the com- 
modities taxed profits would be raised above the 
general level, and capital would be removed from 
one employment to another, till an equilibrium of 
profits was restored, which could only be, after the 
relative prices were altered. 

"Will not this principle account for the different 
effects, which it was remarked were produced on 
the prices of commodities, from the altered value 
of money during the bank restriction ? It was ob- 
jected to those who contended that the currency 
was at that period depreciated, from the too great 
abundance of the paper circulation, tiiat, if that 
were the fact, all commodities ought to have risea 
in the same proj)ortion ; but it was found that many 
had varied considerably more than others, and 



S07 

thence it was inferred that the rise of prices was 
owing to something affecting^ the value of commo- 
dities, and not to any alteration in the value of the 
currency. It appears, however, as we have just 
seen, that, in a country where commodities are 
taxed, they will not all vary in price in the same pro- 
portion, either in consequence of a rise or of a fall 
iai: the value of currency. 

If the profits of all trades were taxed, excepting 
the profits of the farmer, all goods would rise in 
money value, excepting raw produce. The farmer 
would have the same corn income as before, and 
would sell his corn also for the same money price ; 
but as he would be obliged to pay an additional 
price for all the commodities, except corn, which 
lie consumed, it would be to him a tax on expendi- 
ture. Nor would he be relieved from this tax by 
an alteration in the value of money, for an altera- 
tion in the value of money might sink all the taxed 
commodities to their former price, but the untaxed 
one would sink below its former level ; and there- 
fore, though the farmer would purchase his com- 
modities at the same price as before, he would 
have less money with which to purchase them. 

The landlord too would be precisely in the same 
situation, he would have the same corn, and the 
same money rent as before, if all commodities rose 
in price, and money remained at the same value; 
and he would have the same corn, but a less money 
rent, if all commodities remained at the same price ; 
so that in either case, though his income were not 
directly taxed, he would Indirectly contribute 
towards the money raised. 



208 

But suppose the profits of the farmer to be also 
taxed, he then would be in the same situation as 
other traders ; his raw produce would rise, so that 
be would have the same money revenue, after pay- 
ing the tax, but he would pay an additional price 
for all the commodities he consumed, raw produce 
included. 

His landlord however would be differently 
situated, he would be benefited by the tax on his 
tenant's profits, as he would be compensated for 
the additional price at which he would purchase 
his manufactured commodities, if they Tose in 
price ; and he would have the same money revenue, 
if in consequence of a rise in the value of money, 
commodities sold at their former price. A tax on 
the profits of the farmer, is not a tax proportioned 
to the gross produce of the land, but to its net pro- 
duce, after the payment of rent, wages, and all 
other charges. As the cultivators of the different 
kinds of land. No. 1, S, and 3, employ precisely 
the same capitals, they will get precisely the same 
profits, Avhatever may be the quantity of gross 
produce, which one may obtain more than the other ; 
and consequently they will be all taxed alike. 
Suppose the gross produce of the land of the 
quality No. 1, to be 180 qrs., that of No. 2, 170 
qrs., and of No. 3, 160, and each to be taxed 10 
quarters, the difference between the produce of No. 
1, No. 3, and No. 3, after paying the tax, will be 
the same as before ; for if No. 1 be reduced to 17O, 
No. 3 to 160, and No. 3 to 150 qrs. ; the difterence 
between 3 and 1 will be as before, 20 qrs. ; and 
of No. 3 and No. 3, 10 qrs. If after the tax th& 



209 

prices of corn and of every other commodity should 
remain the same as before, money rent as well as 
corn rent, would continue unaltered; but if the price 
of corn, and every other commodity should rise int 
consequence of the tax, money rent will also rise 
in the same proportion. If the price of corn were 
4/. per quarter, the rent of No. 1 would have been 
80Z., and that of No. 2, 40^ ; but if corn rose ten 
per cent., or to 4/. 8s. rent would also rise ten per 
cent., for twenty quarters of corn would then be 
worth 88Z. and ten quarters 44^. ; so that in every 
case the landlord will be unaifected by such a tax, 
j^'Mx on the profits of stock always leaves corn 
rent unaltered, and therefore money rent varies 
with the price of corn ; but a tax on raw produce, 
or tithes, never leaves corn rent unaltered, but gen- 
erally leaves money rent the same as before. In 
atiother part of this work I have observed, that if 
^a land-tax of the same money amount, were laid 
&n every kind of land in cultivation, without any 
allowance for difference of fertility, it would be- 
very unequal in its operation, as it would be a 
profit to the landlord of the more fertile lauds. It 
would raise the price of corn in proportion to the 
burden borne by the farmer of the worst land ; 
but this additional price being obtained for the 
greater quantity of produce yielded by the better 
land, farmers of such land would be benefited 
during their leases, and afterwards, the advantage 
would go to the landlord in the form of an increase 
of rent. The effect of an equal tax on the profits 
of the farmer is precisely the same ; it raises the 
money rent of the landlords, if money retains the 
S7 .' . 



210 

s^ame value ; but as the profits of all other trades^ 
, are taxed, as well as those of the farmer, and con- 
sequently the prices of all goods, as well as corn, 
are raised, the landlord loses as ranch by the in- 
creased money price of the goods and corn on 
which his rent is expended, as he gains by the rise 
of his rent. If money should rise in value, and 
all things should, after a tax on the profits of stock, 
fall to their former prices, rent also would be the 
same as before. The landlord would receive the 
same money rent, and would obtain all the com- 
modities on vvhich it was expended at their former 
price; so that under all circumstances he would 
continue untaxed. . ,,'. 

A tax on the profits of stock would also affect 
the stokholder, if all commodities were to rise in 
proportion to the tax ; but if from the alteration in 
the value of riioney, all commodities were to sink 
to their former price, the stockholder would pay 
nothing towards the tax ; he would purchase all 
his commodities at the same price, but would still 
receive the same money dividend. 

If it be agreed, that by taxing the profits of one 
manufacturer only, the price of his goods would 
rise, to put him on an equality with all other manu- 
facturers ; and that by taxing the profits of two 
manufacturers, the prices of two descriptions of 
goods must rise, I do not see how it can be disputed, 
that by taxing the profits of all manufacturers, the 
prices of all goods would rise, provided the mine 
which supplied us with money, were in the country 
taxed. But as money, or the standard of money, 
is a commodity imported from abroad, the prices of 



all goods could not rise ; for such an effect could 
not take place without an additional quantity of 
money, which could not be obtained in exchange 
for dear goods, as was shewn in page 79. If 
however;, such a rise could take place, it could not 
be permanent, for it would have a powerful influence 
on foreign trade. In return for commodities im- 
ported, those dear goods could not be exported, 
and therefore we should for a time continue to buy, 
although we ceased to sell ; and should export 
money, or bullion, till the relative prices of com- 
modities were nearly the same as before. It ap- 
pears to me absolutely certain, that a well regulated 
tax on profits, would ultimately restore commodi- 
ties both of. home and foreign manufacture, to the 
same money price which they bore before the tax 
was imposed. 

As taxes on raw produce, tithes, taxes on wages, 
and on the necessaries of the labourer, will, by 
raising wages, lower profits,, they will all, though 
not in an equal degree, be attended with the same 
effects. 

The discovery of machinery, which materially 
improves home manufactures, always tends to raise* 
the relative value of money, and therefore to en- 
courage its importation. All taxation, all increas- 
ed impediments, either to the manufacturer, or the 
grower of commodities, tend on the contrary to 
lower the relative value of money, and therefore to 
encourage its exportation. 



CHAPTER XIV. 

Taxts on Wages, 

Taxes on wages will raise wages, and there- 
fore will diminish the rate of the profits of stock. 
We have already seen that a tax on necessaries 
will raise their prices, and will be followed by a 
rise of wages. The only difference between a tax 
on necessaries, and a tax on wages is, that the for. 
mer will necessarily be accompanied by a rise 
in the price of necessaries, but the latter will not ; 
towards a tax on wages, consequently, neither the 
stockholder, the landlord, nor any other class but 
the employers of labour will contribute. A tax 
on wages is wholly a tax on profits, a tax on ne, 
cessaries is partly a tax on profits, and partly a tax 
on rich consumers. The ultimate effects which will 
result from such taxes then are precisely the same 
as those which result from a direct tax on profits. 
*^ The wages of the inferior classes of workmen," 
says Adam Smith, " I have endeavoured to shew 
in the first book, are every where necessarily re- 
gulated by two different circumstances; the dcr 
mand for labour, and the ordinary or average price 
of provisions. The demand for labour, according 
as it happens to be either increasing, stationary, or 
declining or to require an increasiug, stationary, or 



^14 

declining population, regulates the subsistence of 
the labourer, and determines in what degree it 
shall be either liberal, moderate, or scanty. The 
ordinary or average price of provisions determines 
the quantity of money which must be paid to the 
workman, in order to enable him one year with 
another to purchase this liberal, moderate, or scan- 
ty subsistence. While the demand for labour, and 
the price of provisions, therefore remain the same, 
a direct tax upon the wages of labour can have no 
other effect than to raise them somewhat higher 
than the tax.'^ 

To the proposition, as it is here advanced by Dr. 
Smith, Mr. Buchanan offers two objections. First, 
he denies that the money wages of labour are re- 
gulated by the price of provisions ; and secondly, 
he denies that a tax on the wages of labour would 
raise the price of labour. On the first point, Mr. 
Buchanan's argument is as follows, page 59 : " The 
wages of labour, it has already been remarked, 
consist not in money, but in what money purchases, 
namely, provisions and other necessaries ; and the 
allowance of the labourer out of the common stock, 
will always be in proportion to the supply. Where 
provisions are cheap and abundant, his share will 
be the larger ; and where they are scarce and dear, 
it will be the less. His wages will always give 
him his just share, and they cannot give him more. 
It is an opinion indeed, adopted by Br. Smith and 
most other writers, that the money price of labour 
is regulated by the money price of provisions, and 
that when provisions rise in price, wages rise in 
proportion. But it is clear that the price of labour 



2i5 

has no necessary connexion with the price of food|. 
since it depends entirely on the supply of labour^ 
ers compared with the demand. Besides, it vi^;fi|E|- 
be observed, that the high price of provisions is a 
certain indication of a deficient supply, and arises 
in the natural course of things, for the purpose of 
retarding the consumption. A smaller supply of 
food, shared among the same number of consumers, 
will evidently leave a smaller portion to each, and 
the labourer must bear his share of the common 
want. To distribute this burden equally, and to 
prevent the labourer from consuming subsistence so 
freely as before, the price rises. But wages it 
seems must arise along with it, that he may still 
use the same quantity of a scarcer commodity; 
and thus nature is represented as counteracting her 
own purposes : first, raising the price of food, to 
diminish the consumption, and afterwards, raising 
w^ages to give the labourer the same supply as be- 
fore..'' . 

In this argument of Mr. Buchanan, there appears 
to me, to be a great mixture of truth and error. 
Because a high price of provisions is sometimes 
occasioned by a deficient supply, Mr. Buchanan as- 
sumes it as a certain indication of a deficient sup- 
ply. He attributes to one cause exclusively, that 
which may arise from many. It is undoubtedly 
true, that in the case of a deficient supply, a smali^ 
ler quantity will be shared among the same num- 
ber of consumers, and a smaller portion will fall to 
each. To distribute this privation equally, and to 
prevent the labourer from consuming subsistence so 
freely as before, the price rises. It must therefore 



S16 

be conceded to Mr. Buchanan, that any rise in the- 
price of provisions, occasioned by a deficient sup- 
ply, will not necessarily raise the money wages of 
labour ; as the consumption must be retarded ; 
which can only be effected by diminishing the pow- 
er of the consumers to purchase. But, because the 
price of provisions is raised by a deficient supply, 
we are by no means warranted in concluding, as 
Mr. Buchanan appears to do, that there, may not 
be an abundant supply, with a high price ; not a 
high price with regard to money only but with 
regard to all other things. 

The natural price of commodities, which always 
ultimately governs their market price, depends on 
the facility of production ; but the quantity pro- 
duced is not in proportion to that facility. Al- 
though the lands, which are now taken into culti- 
vation, are much inferior to the lands in cultivation 
three centuries ago, and therefore the difficulty of 
production is increased, who can entertain any 
doubt, but that the quantity produced now, very 
far exceds the quantity then produced ? Not only 
is a high price compatible with an increased sup- 
ply, but it rarely fails to accompany it. If, then, 
inconsequence of taxation, or of difficulty of pro- 
duction, the price of provisions be raised, and the 
quantity be not diminished, the money wages of 
labour will rise ; for as Mr. Buchanan has justly 
obberved, "The wages of labour consist not in 
money, but in what money purchases, namely, pro- 
visions and otber necessaries ; and the allowance of 
the labourer out of the common stock, will always 
be in proportion to the supply.'^ 



M7 

With respect to the second point, whether a tax ~^ „ 
on the wages of labour would raise tlie price of la- j \ 

hour, Mr. Buchanan says, " After the labourer 
has received the fair recompence of his labour, 
how can he have recourse on his employer, for 
what he is afterwards compelled to pay away in 
taxes? There is no law or principle in human af- 
fairs to warrant such a conclusion. After the la- 
bourer has received his wages, they are in his own 
keeping, and lie must, as far as he is able, bear the 
burthen of whatever exactions he may ever after- 
wards be exposed to : for he has clearly no way 
of compelling those to re-iraburse him, who have 
already paid him the fair price of his work." 
Mr. Buchanan has quoted, with great approbation, 
the following able passage from Mr. Malthus's 
work on population, which appears to me complete- 
ly to answer his objection. *^ The price of labour, 
when left to find its natural level, is a most impor- 
tant political barometer, expressing the relation be- 
tween the supply of provisions, and the demand 
for them, between the quantity to be consumed, and 
the number of consumers ; and, taken on the ave- 
rage, independently of accidental circumstances, it 
further expresses, clearly, the wants of the society 
respecting population, that is, whatever may be the 
number of children to a marriage necessary to 
maintain exactly the present population, the price 
of labour will be just sufficient to suj port this num- 
ber, or be above it, or below it, according to the 
state of the real funds, for the maintenance of 
labour, whether stationary, progressive, or re- 
trograde. Instead^ however, of considering it 
'28 



S18 

in this liglit, we consider it as something Aviiicli 
we may raise or depress at pleasure, sometiiing 
which depends principally on his majesty's justices 
of the peace. When an advance in the price of 
provisions already expresses that the demand is 
too great for the supply, in order to put the labour- 
er in the same condition as before, we raise the 
price of labour, that is, we increase tlie demand, 
and are then much surprised, that the price. of pro- 
visions continues rising. In this, Ave act much in 
the same manner, as if, when the quicksilver in the 
common weather glass, stood at siurmy. we were to 
raise it by some forcible pressure to settled fair, and 
then be greatly astonished that it continued rain- 
ing." 

" The price of labour will express, clearly, the 
wants of the society respecting population ; it will 
be just sufficient to support the population, which 
at that time the state of the funds for the mainte- 
nance of labourers, requires. If the labourers 
v.ages were before only adequate to supply the re- 
quisite population, they will, after the tax, be inad- 
equate to that supply, for he will not have the same 
funds to expend on his family. Labour will there- 
fore rise, because the demand continues, and it is 
only by raising the price, that the supply is not 
checked. 

Nothing is more common, than to see bats or 
malt rise when taxed ; they rise because the requi- 
site supply would not be afforded if they did not 
i^ise : so with labour, when wages are taxed, its 
price rises, because, if it did not, the requisite 
population would not be kept up. Does not Mr, 






219 

Euchanan allow all that is contended for, when he 
says, that " were he (the labourer) indeed reduced 
to a bare allowance of necessaries, he would then 
suffer no further abatement of his wages, as he 
could not on such conditions continue his race?" 
Suppose the circumstances of the country to be 
such, that the lowest labourers are not only called 
upon to continue their race, but to increase it ; 
their wages would have been regulated according- 
ly. Can they multiply, if a tax takes from them 
a part of their wages, and reduces them to bare 
necessaries ? 

It is undoubtedly time, that a taxed commodity] 
will not rise in proportion to the tax, if the de-| ]V 
mand for it will diminish, and if the quantity can-! 
not be reduced. If metallic money were in gene-' 
ral use, its value would not for a considerable time 
be increased by a tax, in proportion to the amount 
of the tax, because at a higher price, the demand 
would be diminished, and the quantity would not 
be diminished ; and unquestionably the same cause 
frequently influences the wages of labour, the num- 
ber of labourers cannot be rapidly increased or di- 
minished in proportion to the increase or dimi- 
nution of the fund, which is to employ them; but 
in the case supposed, there is no necessary dimi- 
nution of demand for labour, and if diminished, 
the demand does not abate in proportion to the tax. 
Mr. Buchanan forgets that the fund raised by the 
tax is employed by government in maintaining la- 
bourers, unproductive indeed, but still labourers. 
If labour were not to rise when wages are taxed, 
there would be a great increase in the competition 



for labour, because the owners of capital, who 
would have nothing to pay towards such a tax, 
would have the same funds for employing labour ; 
whilst the government who received the tax would 
have an additional fund for the same purpose. 
Government and the people thus become competi- 
tors, and the consequence of their competition is a 
rise in the price of labour. The same number of 
men only will be employed, but they will be em- 
ployed at additional wages. 

If tlie tax had been laid at once on the people, 
their fund for the maintenance of labour would 
have been diminished in the very same degree 
that the fund of government for that purpose had 
been increased ; and therefore there would have 
been no rise in wages ; for though there would be 
the same demand, there would not be the same 
competition. If when the tax were levied, gov- 
ernment at once exported the produce of it as a sub- 
sidy to a foreign state, and if therefore these 
funds were devoted to the maintenance of foreign, 
and not of English labourers, such as soldiers, 
sailors, &c. &c. ; then, indeed, there would 
be a diminished demand for labour, and wages 
might not increase although they were taxed ; 
but the same thing would happen if the tax had 
been laid on consumable commodities, on the pro- 
fits of stock, or if in any other manner the same 
sura had been raised to supply this subsidy : less 
labour could be employed at home. In one case 
wages are prevented from rising, in the other they 
must absolutely fall. But suppose the amount of 
a tax on wages were, after being raised on the la- 



231 

bourers, paid gratuitously to their employers, it 
would increase tiieir money fund for the mainte- 
nance of labour, but it would not increase either 
commodities or labour. It would conseqently in- 
crease the competition amongst the employers of 
labour, and the tax would be ultimately attended 
with no loss either to master or labourer. The 
master would pay an increased price for labour ; 
the addition which the labourer received would 
be paid as a tax to government, and would be 
again returned to their masters. It must however 
not be forgotten that the produce of taxes is often 
wastfully expended, and that by diminishing ca- 
capital they tend to diminish the real fund destin- 
ed for the maintenance of labour ; and therefore 
to diminish the real demand for it. Taxes then^ 
generally, as far as they impair the real capital of 
the country, diminish the demand for labour, and 
therefore it is a probable, but not a necessary, nor 
a peculiar consequence of a tax on wages, that 
though wages would rise, they would not rise by a 
sum precisely equal to the tax. 

Adam Smith, as we have seen, has fully allowed 
that the eflect of a tax on wages would be to raise 
wages by a sum at least equal to the tax, and 
would be finally, if not immediately, paid by the 
employer of labour. Thus far we fully agree ; 
but we essentially differ in our views of the subse- 
quent operation of such a tax. 

*^ A direct tax upon the wages of labour, there- 
fore," says Adam Smith, "though the labourer 
might perhaps pay it out of his hand, could not pro- 
perly be said to be even advanced by him ; at least if 



232 

the flemaiKl for labour and the average price of provi- 
sions remained the same after the tax as before it. 
In all such casesj not only the tax, but something 
more than the tax, would in reality be advanced 
by the person who immediately employed him. 
The final payment Avould in different cases fall 
upon different persons. The rise which such a 
tax might occasion in the wages of manufacturing 
labour, would be advanced by the master manu- 
facturer, who would be entitled and obliged to 
charge it with a profit, upon the price of his goods. 
The rise which such a tax might occasion in 
country labour would be advanced by the farmer, 
who, in order to maintain the same number of 
labourers as before, would be obliged to employ a 
greater capital. In order to get back this greater 
capital, together with the ordinary profi^ts of stocky 
it would be necessary that he should reta.in a larger 
portion, or what comes to the same thing, the price 
of a larger portion of the produce of the land, 
and consequently that he should pay less rent to 
the landlord. The final payment of this rise of 
nvages, therefore, would in this case fall upon the 
landlord, together with the additional profits of the 
farmer who had advanced it. In all cases a direct 
tax upon the vyages of labour must, in the long run, 
occasion both a greater reduction in tiie rent of 
land, and a greater rise in the price of manufactured 
goods, than would have followed, from the proper 
assessment of a sum equal to the produce of the 
tax, partly upon the rent of land, and partly upon 
consumable commodities." Vol. iii. p. 337. I" 
this passage it is asserted that the additional wages 



2S3 

pai<l by {iirmei's m ill . ultimately fall on the lancl= 
lords, who will receive a diniinished rent; but 
that tlie additional wages paid by manufacturers 
will occasion a rise in the ])rice of manufactured 
goods, and will therefore fall on the consumers of 
those commodiiies. 

Now suppose a society to consist of landlords, 
manufacturers, farmers, and labourers. The 
labourers, it h agreed, w^cisld be recompenced for 
the tax ;-^but by whom ? — who would pay that 
portion which did not fall on the landlords?^ — the 
manufacturers could pay no part of it ; for if the 
price of their commodities should rise in proportion 
to the additional wages they paid, they would be 
in a better situation after than before the tax. If 
the clothier, the hatter, the shoemaker, &c., should 
be each able to raise the price of their goods 10 
per cent., — supposing 10 per cent, to recompence 
them completely for the additional wages they 
paid, — if, as Adam Smith says, 'Mhey would be 
entitled and obliged to charge the additional wages 
with a profit upon the price of their goods," they 
could each consume, as much as before of each 
other's goods, and therefore they would pay nothing 
towards the tax. If the clothier paid more for his 
£ats and shoes, he would receive more for his cloth, 
and if the hatter paid more for his cloth and shoes:, 
he would receive more for his hats. All manufac- 
tured commodities then would be bought by them 
with as much advantage as before, and inasmuch 
as corn would not be raised in price whilst they 
had an additional sum to lay out upon its pur- 



S2-i 

cliase, they M'ould be benefited and not injured by 
such a tax. 

If then neither the labourers nor the manufactu- 
rers would contribute towards such a tax , if the 
farmers would be also reconipenced by a fall of 
rent, landlords alone must not only bear its whole 
weight, but they must also contribute to the increas- 
ed gains of the manufacturers. To do this, how- 
ever, they should conBurac all the manufactured 
commodities in the country, for the additional 
price charged on the whole mass is little more 
than the tax originally imposed on the labourers in 
manufactures. 

Now it will not be disputed that the clothier, 
the hatter, and all other manufacturers, are con- 
sumers of each other's goods ; it will not be dis- 
puted that labourers of all descriptions consume 
soap, cloth, shoes, candles, and various other com- 
modities ; it is therefore impossible that the whole 
weight of these taxes should fall on landlords 
only. . 

But if the labourers pay no part of the tax, and 
yet manufactured commodities rise in price, wages 
must rise, not only to compensate them for the tax, 
but for the increased price of manufactured necessa- 
ries, which, as far it affects agricultural labour, 
will be a new cause for the fall of rent; and, as 
far as it affects manufacturing labour, for a further 
rise in the price of goods. This rise in the price 
of goods will again operate on wages, and the 
action and re-action, first of wages on goods, and 
then of goods on wages, will be extended without 
any assignable limits. The arguments by which 



this theory is supported, lead to such absurd con- 
clusions that it may at once be seen that tiie principle 
is wholly indefensible. 

All the effects which are produced on the profits 
of stock and the wages of labour, by a rise of 
rent and a rise of necessaries, in the natural pro- 
gress of society, and increasing difficulty of produc- 
tion, will be produced by a rise of wages in con- 
sequence of taxation ; and therefore the enjoyments 
of the labourer, as well as those of his employers, 
will be curtailed by the tax ; and not by this tax 
particularly, but by any other which should raise 
an equal amount. 

The error of Adam Smith proceeds in the first 
place from supposing, that all taxes paid by the 
farmer must necessarily fall on the landlord, in the 
shape of a deduction from rent. On this subject 
I have explained myself most fully, and I trust 
that it has been shewn, to the satisfaction of the 
reader, that since much capital is employed on the 
land which pays no rent, and since it is the result 
obtained by this capital which regulates the price 
of raw produce, no deduction can be made from 
rent; and consequently either no remuneration 
will be made to the farmer for a tax on wages, or 
if made, it must be made by an addition to the 
price of raw produce. 

If taxes press unequally on the farmer, he will 
be enabled to raise the price of raw produce, to 
place himself on a level with those who carry on 
other trades; but a tax on wages, which would 
not affect him more than it would affect any other 
trade, could not be removed or compensated by a 
29 



g26 

high price of raw produce ; for, the same reason 
which should induce him to raise the price of corn, 
namely, to remunerate himself for the tax, would 
induce the clothier to raise the price of cloth, the 
shoemaker, hatter, and upholsterer, to raise the 
price of shoes, hats, and furniture. 

If they could all raise the price of their goods, 
so as to remunerate themselves, with a profit, for 
the tax; as they are all consumers of each other's 
commodities, it is obvious that the tax could never 
be paid ; for who would be the contributors if all 
were compensated ? 

I hope then that I have succeeded in shewing, that 
any tax which shall have the eSieci of raising wages, 
will be paid by a diminution of profits, and there- 
fore that a tax on wages is in fact a tax on profits. 

This principle of the division of the produce of 
labour and capital between wages and profits, which 
I have attempted to establish, appears to me so 
certain, that excepting in the immediate effects, I 
should think it of little importance whether the 
profits of stock, or the wages of labour, were taxed. 
By taxing the profits of stock, you would probably 
alter the rate at which the funds for the maintenance 
of labour increase, and wages would be dispro- 
portioned to the state of that fund, by being too 
high. By taxing wages, the reward paid to the 
labourer would also be disproportioned to the state 
of that fund, by being too low. In the one case 
by a fall, and in the other by a rise in money 
wages, the natural equilibrium between profits and 
wages would be restored. A tax on wages then 
does not fail on the landlord, but it falls on the 



profits of stock: it does not " entitle and oblige 
the master manufacturer to charge it with a profit 
on the prices of his goods," for he will be unable 
to increase their price, and therefore he must him- 
self wholly and without compensation pay such a 
tax.^ 

If the effect of taxes on wages be such as I have 
described, they do not merit the censure cast upon 
them by Dr. Smith. He observes of such taxes, 
"These, and some other taxes of the same kind, 
by raising the price of labour, are said to have 
ruined the greater part of the manufactures of 
Holland. Similar taxes, though not quite so 
heavy, take place in the Milanese, in the states of 
Genoa, in the duchy of Modena, in the duchies of 
Parma, Placentia, and Guastalla, and in the 
ecclesiastical states. A French author of some 
note, has proposed to reform the finances of his 
country, by substituting in the room of other taxes, 
this most ruinous of all taxes. * There is nothing 
so absurd,' says Cicero, * which has not sometimes 
been asserted by some philosophers. " And in 
another place he says : " taxes upon necessaries, 
by raising the wages of labour, necessarily tend to 
raise the price of all manufactures, and consequently 
to diminish the extent of their sale and consumption.'' 

* M. Say appears to liave imbibed the general opinion on 
this subject. Speaking of corn, he says, " thence it results, 
that its price influences the price of all other commodities. 
A farmer, a manufacturer, or a merchant, employs a certain 
number of workmen, who all have occasion to consume a 
certain quantity of corn. If the price of corn rises, he is 
obliged to raise, in an equal proportion, the price of his produc- 
tions." Vol. i. pv 255. 



228 

They would not merit this censure; even if Dr. 
Smith's principle were correct that such taxes would 
enhance the prices of manufactured commodities : 
for such an effect could be only temporary, and 
would subject us to no disadvantage ia our foreign 
trade. If any cause should raise the price of a 
few manufactured commodities, it would prevent or 
cheek their exportation ; but if the same cause 
operated generally on all, the effect would be merely 
nominal, and would neither interfere with their 
relative value, nor in any degree diminish the 
stimulus to a trade of barter ; which all commerce, 
both foreign and domestic, really is. 

I have already attempted to shew, that when any 
cause raises the prices of all commodities in general, 
flie effects are nearly similar to a fall in the value 
of money. If money falls in value, all commodi- 
ties rise in price ; and if the effect is confined to 
one country, it will affect its foreign commerce in 
the same way as a high price of commodities caused 
by general taxation ; and therefore in examining 
the effects of a low value of money confined to one 
country, we are also examining the effects of a high 
price of commodities confined to one country. 
Indeed Adam Smith was fully aware of the resem- 
blance between these two cases, and consistently 
maintained that the low value of money, or, as he 
calls it, of silver in Spain, in consequence of the 
prohibition against its exportation, was very highly 
prejudicial to the manufactures and foreign com- 
merce of Spain. " But that degradation in 
the value of silver, which being the effect either of 
the peculiar situation, or of the political institutions 



229 

of a particular country, takes place only in that 
couiitryj is a matter of very great consequence, 
which, far from tending to make any body really 
richer, tends to make every body really poorer. 
The rise in the money price of all commodities, 
which is in this case peculiar to that country, tends 
to discourage more or less eVery sort of industry 
which is carried on within it, and to enable foreign 
nations, by furnishing almost all sorts of goods for 
a smaller quantity of silver than its own workmen 
can aiford to do, to undersell them not only in the 
foreign, but even in the home market.'' Vol. ii. 
page 278. 

One, and I think the only one of the disadvantages 
of a low value of silver in a country, proceeding 
from a forced abundance, has been ably explained 
by Dr. Smith. If the trade in gold and silver were 
free, " the gold and silver which would go abroad, 
would not go abroad for nothing, but would bring 
back an equal value of goods of some kind or 
another. Those goods too would not be all matters 
of mere luxury and expense, to be consumed by 
idle people, who produce nothing in return for their 
consumption. As the real wealth and revenue of 
idle .people would not be augmented by this ex- 
traordinary exportation of gold and silver, so 
would neither their consumption be augmented by 
it. Those goods would, probably the greater part 
of them, and certainly some part of them, consist 
in materials, tools, and provisions, for the employ- 
ment and maintenance of industrious people, who 
would reproduce with a profit, the full value of their 
consumption. A part of the dead stock of the 



2S0 

society would thus be turned into active stock, and 
would put into motion a greater quantity of industry 
than had been employed before.'' 

By not allowing a free trade in the precious 
metals when the prices of commodities are raised, 
either by taxation, or by the influx of the precious 
metals, you prevent a part of the dead stock of the 
society from being turned into active stock — you 
prevent a greater quantity of industry from being 
employed. But this is the whole amount of the 
evil j an evil never felt by those countries where 
the exportation of silver is either allowed or con- 
nived at. 

The exchanges between countries are at par only, 
whilst they have precisely that quantity of currency 
which in the actual situation of things they should 
have to carry on the circulation of their commodi- 
ties. If the trade in the precious raetals were per- 
fectly free, and money could be exported without 
any expense whatever, the exchanges could be no 
otherwise in every country than at par. If the 
trade in the precious metals were perfectly free, if 
they were generally used in circulation, even with 
the expenses of transporting them, the exchange 
could never in any of them deviate more from. par, 
than by these expenses. These principles I believe 
are now no wiicre disputed. If a country used 
paper money not exchangeable for specie, and 
therefore not regulated by any fixed standard, the 
exchanges in that country might deviate as much 
from par, as its money might be multiplied beyond 
that quantity which would have been allotted to 
it by general commerce-, if the trade in money had 



231 

been free, and the precious metals had been used, 
either for money, or for the standard of money. 

If by the general operations of commerce, 10 
millions of pounds sterling, of a known weight and 
fineness of bullion, should be the portion of England, 
and 10 millions of paper pounds were substituted, 
no efi'ect would be produced on the exchange ; but 
if by the abuse of the power of issuing paper money, 
11 millions of pounds should be employed in the 
circulation, the excliange would be 9 per cent, 
against England ; if 13 millions were employed, 
the exchange would be 16 per cent. ; and if 20 
millions, the exchange would be 50 per cent, 
against England. To produce this effect it is not 
however necessary that paper money should be 
employed ; any cause which retains in circulation 
a greater quantity of pounds than would have 
circulated, if commerce had been free, and the 
precious metals of a known weight and fineness 
had been used, either for money, or for the standard 
of money, would exactly produce the same effects. 
Suppose that by clipping the money, each pound 
did not contain the quantity of gold or silver which 
by law it should contain, a greater number of such 
pounds might be employd in the circulation, than if 
they were not clipped . If from each pound one tenth 
were taken away, 11 millions of such pounds 
might be used instead of 10 ; if two tenths were 
taken away, IS millions might be employed ; and 
if one half were taken away, 20 millions might not 
be found superfluous. If the latter sum were used 
instead of 10 millions, every commodity in England 
would be raised to double its former price, and the 



2S2 

exchange would be jO per cent, against England, 
but this would occasion no disturbance in foieign 
commerce, nor discourage the manufacture of any 
one commodifcy. If for example, cloth rose in 
England from 201. to 40L per piece, we should 
just as freely export it after as before the rise, for 
a compensation of 30 per cent, would be made to 
the foreign purchaser in the exchange ; so that with 
20L of his money, he could purchase a bill which 
would enable him to pay a debt of 40?. in England. 
In the same manner if he exported a commodity 
which cost 30/. at home, and which sold in England 
for 40/. he would only receive 20/., for 40/. ia 
England would only purchase a bill for 201. on a 
foreign country. The same effects would follow 
from whatever cause 20 millions could be forced to 
perform the business of circulation in England, if 
10 millions only were necessary. If so absurd a 
law, as the prohibition of the exportation of the 
precious metals, could be enforced, and the conse- 
quence of such prohibition were to force 1 i millions 
instead of 10 into circulation, the exchange would 
be 9 per cent, agiinst England; if 12 millions, 
16 per cent. ; and if 20 millions, 50 per cent, 
against England. But no discouragement would 
be given to the manufactures of England ; if home 
commodities sold at a high price in England, so 
would foreign commodities ; and whether they 
were high or low would be of little importance to 
the foreign exporter and importer, whilst he would, 
on the one hand, be obliged to allow a compensa- 
tion in the exchange when his commodities sold 
at a dear rate, and would receive the same compea- 



233 

sation, wliea he was obliged to purcbase English 
commodities at a high price. The sole disadvantage 
then which cotild happen to a country from retain- 
ing by prohibitory laws a greater quantity of gold 
and silver in circulation than would otherwise 
remain there, would be the loss which it would 
sustain from employing a portion- of its capital 
unproductively, instead of employing it produc- 
tively. In the form of money this capital is pro- 
ductive of no profit ; in the form , of materials, 
machinery, and food, for which it might be ex- 
changed, it would be productive of revenue, and 
would add to the w^ealth and the resources of 
the state. Thus then I hope I have satisfactorily 
proved, that a comparatively low price of the pre- 
cious metals, in consequence of taxation, or in. 
other words, a generally high price of commodi- 
ties, Avould be of no disati vantage to a state, as a 
part of the metals would be exported, which, by 
raising their value, would again lower the prices of 
commodities. And further, that, if they were not 
exported, if by prohibitory laws they coiild be re- 
tained in a country, the effect on the exchange 
would counterbalance tlie effect of high prices. 
If then taxes on necessaries and on wages would 
not raise the prices of all commodities on which 
labour was expended, they cannot be condemned 
on sucli grounds ; and moreover, even if the opinion 
that they would have such an effect were well 
founded, they would be in no degree injurious on 
that account. 

It is undoubtedly true, that '' taxes upon luxuries 
have no tendency to raise the price of any other 
30 



234i 

commoditiesj except that &f the commodities taxed;" 
but it is not true, that taxes upon necessaries, by 
raising the wages of labour, necessarily tend to 
raise the price of all manufactures. It is true, 
that "taxes upon luxuries are finally paid by the 
consumers of the commodities taxed, without any 
retribution. They fall indifferently upon every 
species of revenue, the wages of labour, the profits 
of stock, and the rent of land ;" but it is not true, 
" that taxes upon necessaries so far as they affect 
the labouring poor, are finally paid partly by land- 
lords in the diaiinished rent of their lands, and 
partly by rich consumers, whether landlords or 
others, in the advanced price of manufactured 
goods;" for so far as these taxes affect the labour- 
ing poor, they will be almost wholly paid by the 
diminished profits of stock, a small part only 
being paid by the labourers themselves in the 
diminished demand for labour, which taxation of 
every kind has a tendency to produce. 

It is from Dr. Smith's erroneous view of the 
effect of those taxes, that he has been led to the 
conclusion, that "the middling and superior ranks 
of people, if they understood their own interest, 
ought always to oppose all taxes upon the necessa- 
ries of life, as well as all direct taxes upon the 
wages of labour. This conclusion follows from 
his reasoning, " that the final payment of both one 
and the other falls altogether upon themselves, and 
always with a considerable overcharge. They fall 
heaviest upon the landlords, who always pay in 
a double capacity ; in that of landlords, by the 



S35 

reduction of their rent, and in that of rich consu- 
mers, by the increase of their expense. The 
observation of sir Matthew Decker, that certain 
taxes are in the price off certain goods, sometimes 
repeated and accumulated four or five times, is 
perfectly just with regard to taxes upon the neces- 
saries of life. In the price of leather, for example, 
you must pay, not only for the tax upon the lea- 
ther of your own shoes, but for a part of that upon 
thoseof the shoe-maker and the tanner. You must 
pay too for the tax upon the salt, upon the soap, 
and upon the candles, which those workmen con- 
sume while employed in your service, and for the 
tax upon the leather, which the salt-maker, the 
soap-maker, and the candle-maker consume, while 
employed in their service.'' 

Now as Dr. Smith does not contend that the 
tanner, the salt-maker, the soap-maker, and the 
candle-maker, will either of them be benefited by 
the tax on leather, salt, soap, and candles ; and as 
it is certain, that government will receive no more 
than the tax imposed, it is impossible to conceive, 
that more can be paid by the public upon whomso- 
ever the tax may fall. The rich consumers may, 
and indeed will, pay for the poor consumer, but 
they will pay no more than the whole amount of 
the tax ; and it is not in the nature of things, that 
" the tax should be repeated and accumulated four 
or five times." 

A system of taxation may be defective ; more 
may be raised from the people, than what finds its 
way into the coffers of the state, as a part, in con- 



/ 



336 

sequence of its effect on prices^ may possibly be 
received by those, who are l)enefite(l by the pecu- 
liar mode in which taxes are laid. Such taxes arc 
pernicious, and should not be encouraged ; for it 
may be laid down as a principle, that when taxes 
operate justly, they conform to the first of Dr. 
Smitlrs maxims, and raise from the people as little 
as possible beyond what enters into the public 
treasury of the state. M. Say says, " others offer 
plans of finance, and propose means for filling the 
coffers of the sovereign, without any charge to his 
subjects. But unless a plan of finance is of the 
nature of a commercial undertaking, it cannot give 
government more than it takes away, either from 
individuals, or from government itself, under some 
other form. Something cannot be made out of 
nothing, by the stroke of a wand. In whatever 
w^ay an operation may be disguised, whatever 
forms we may constrain a value to take, whatever 
metamorphosis we may make it u!)dcrgo, we can 
only have a value by creating it, or by taking it 
from others. The very best of all plans of finance 
is to spend little, and the best of all ta-xes is, that 
which is the least in amount." 

Dr. Smith uniformly, and I think justly, con- 
k tends, that the labouring classes cannot materially 
contribute to the burdens of the state. A tax on 
necessaries, or on wages, will therefore be shifted 
from the poor to the rich : if then, the meaning of 
Dr. Smith is, ^^ that certain taxes are in the price of 
certain goods sometimes repeated, and accumulated 
four or five times," for the purpose only of accoqi- 



plishing this end, namely, the transference of the 
tax from the poor to the rich, they cannot be 
liable to censure on that account. 

Suppose the just share of the taxes of a rich 
consumer to be 100/., and that he would pay it 
directly, if the tax were laid on income, on wine, 
or on any other luxury, he would suffer no injury 
if by the taxation of necessaries, he should be only 
called upon for the payment of '^51., as far as his 
own consumption of necessaries, and that of his 
family was concerned, but should be required to 
repeat this tax three times, by paying an additional 
price for other commodities isy remunerate the 
labourers, or their employers, for the tax which 
they have been called upon to advance. Even in 
that case the reasoning is inconclusive : for if there 
be no more paid than what is required by govern- 
ment ; of what importance can it be to the ricli 
consumer, whether he pay the tax directly, by pay- 
ing an increased price for an object of luxury, or 
indirectly, by paying an increased price for the 
necessaries and other commodities he consumes ? 
If more be not paid by the people, than what is 
received by government, the rich consumer w'ill 
only pay his equitable share ; if more is paid, 
Adam Smith should have stated by whom it is re- 
ceived. 

M. Say does not appear to me to have consis- 
tently adhered to the obvious principle, which I 
have quoted from bis able work ; for in the next 
j>age, speaking of taxation, he says, " When it is 
pushed too far, it produces this lamentable effect, 



2Z8 

it deprives the contributor of a portion of his 
riches, without enrichingthe state. This is what 
we may comprehend, if Ave consider that every 
man's power of consuming, Vvhether productively 
or notj is limited by his income. He cannot then 
be deprived of a part of his income, without being 
obliged proportionally to reduce his consumption. 
Hence arises a diminution of demand for those 
goodsj which he no totiger consumes, and particu- 
larly for those on which the tax is imposed. From 
this diminution of demand, there results a dimi- 
nution of production, and consequently of taxable 
commodities. The contributor then will lose a 
portion of his enjoyments ; the producer, a portion 
of his profits ; and the treasury, a portion of its 
receipts."' 

M. Say instances the tax on salt in France, 
previous to the revolution ; which, he say?, dimi- 
nished the production of salt by one half. If, how- 
ever, less salt was consumed, less capital was em- 
ployed in producing it; and therefore, though the 
producer would obtain less profits on the produc- 
tion of salt, he would obtain more on the produc- 
tion of other things. If a tax, however burden- 
some it may be, falls on revenue, and not on capital, 
it does not diminish demand, it only alters the 
nature of it. It enables government to consume 
as much of the produce of the land and labour of 
the country, as was ])efore consumed by the indivi- 
duals, who contribute to the tax. If my income 
is 1000/ per annum, and I am called upon for lOOZ. 
per annum for a tax, I shall only be able to demand 



239 

nine tenths of the quantity of goods, which I 
before consumed, but I enable government to de- 
mand the other tenth. If the commodity taxed 
be corn, it is not necessary that my demand for 
corn should diminish, as I may prefer to pay lOOZ. 
per annum more for my corn, 'and to the same 
amount abate in my demand for wine, furniture, or 
any other luxury.* Less capital will consequently 
be employed in the wine or upholstery trade, but 
more will be employed in manufacturing those 
commodities, on which the taxes levied by govern- 
meijt will be expended. 

M. Say says that M. Turgot, by reducing the 
market dues on (ish fUs droits (Pentvee et de halle 
8ur la mareej m Paris one half, did not diminish 
the amount of their produce, and that consequently, 
the consumption of fish must have doubled. He in- 
fers from this, that the profits of the fisherman and 
those engaged in the trade, must also have doubled, 
and that the incomeof the country must have increas- 
ed, by the whole amount of these increased profits ; 
and by giving a stimulus to accumulation, must have 
increased the resources of the state.f 

* M. Say says, that "the tax, added to the' price of a com- 
modity, raises its price. Every increase in the price of a 
commodity, necessarily reduces the number of those who are 
able to purchase it, or 'at least the quantity they will consume 
of it." This is by no means a necessary consequence- I do 
not believe, that if bread were taxed, the consumption of bread 
would be diminished, more than if cloth, wine, or soap, were 
taxed. 

t The following remark of the same author appears to we 
aqually. erroneous : « When a high duty is laid on cotton, the 



S40 

Without calling in question tlie policy, which 
dictated this alteration of the tax, I may be per- 
mitted to doubt whether it gave any great stimulus 
to accumulation. If the profits of the fisherman 
and others engaged in the trade, were doubled in 
consequence of more fish being consumed, capital 
and labour must have been withdrawn from otlier 
occupations to engage them in this particular trade. 
But in those occupations capital and labour were 
productive of profits, which must have been given 
up when they were withdrawn. The ability of 
the country to accumulate was only increased by 
the difference between the profits obtained in the 
business in which the capital was newly engaged, 
and those obtained in that from- which it was with- 
drawn. 

Whether taxes be taken from revenue or capital, 
they diminish the taxable commodities of the state. 
If 1 cease to expend 100/. on wine, because by 
paying a tax of that amount 1 have enabled govern- 
ment to expend 100/. instead of expending it my* 
self, one hundred pounds worth of goods are ne- 
cessarily withdrawn from the list of taxable com- 
modities. If the revenue of the individuals of 
a country be 10 millions, they will have at least 10 

production of all those goods, of which cotton h the basis, i» 
diminished. If the total value added to cotton in its various 
manufactures, in a particular country, amounted to 100 mil- 
lions of trancs per annum, and the eftect of the tax was, to 
diminish the consumption one halT, then the tax would deprive 
that country every year of 50 millions of francs, in addition 
to tlie sum received by government." Vol. ii. p. 314 



241 

millions worth of taxaLle commodities. If by 
taxing some, one million be transferred to the dis- 
posal of government, their revenue w^ill still be 
nominally 10 millions, but they will remain with 
only nine millions worth of taxable commodities. 
There are no circumstances under which taxation 
does riot abridge the enjoyments of those on whom 
the taxes ultimately fail, and no means by which 
those enjoyments can again be extended, but the 
accumulation of new revenue. 

Taxation can never be so equally applied, as to 
operate in the same proportion on the value of all 
commodities, and still to preserve them at the same 
relative value. It frequently operates very diife- 
rently from the intention of the legislature^ by its 
indirect effects. We have already seen, that the 
effect of a direct tax on corn and raw produce, is, 
if money be also produced in the country, to raise 
the price of all commodities, in proportion as raw 
produce enters into their composition, and thereby 
to destroy the natural relation which previously 
existed between them. Another indirect effect is, 
that it raises wages, and lowers the rate of profits 5 
and we have also seen, in another part of this 
work, that the effect of a rise of wages, and a fall 
of profits, is to lower the money prices of those 
commodities which are produced in a greater 
degree by the employment of fixed capital. 

That a commodity when taxed can no longer be 

so profitably exported, is so well understood, that 

a drawback is frequently allowed on its exporta- 

tion^ and a duty laid on its importation. If these 
31 



S43 

drawbacks and duties be accurately laid, not only 
on the commodities themselves, but on all which 
they may indirectly affect, then indeed there will 
W€- no disturbance in the value of the precious 
metals. Since we could as readily export a com- 
modity after being taxed as before, and since no 
peculiar facility would be given to importation, the 
precious metals would not, more than before, enter 
into the list of exportable commodities. 

Of all commodities, none are perhaps so proper 
for taxation, as those which either by the aid of 
nature or art, are produced with peculiar facility. 
With respect to foreign countries, such commodi- 
ties may be classed under the head of those which 
are not regulated in their price by the quantity of 
labour bestowed, but rather by the caprice, the 
tastes, and the power of the purchasers. If Eng- 
land had more productive tin mines than other 
countries, or if from superior machinery or fuel 
she had peculiar facilities in manufacturing cotton 
goods, the prices of tin, and of cotton goods would 
still in England be regulated by the comparative 
quantity of labour and capital required to produce 
them, and the competition of our merchants would 
make them very little dearer to the foreign consumer. 
Our advantage in the production of tliese commo- 
dities might he so decided, that probably they 
could bear a very great additional price in the 
foreign market, without, very materially diminishing 
their consumption. This price they never could 
attain, whilst competition was free at home, by any 
other means but by a tax on their exportation. 



243 

This tax would fall wholly on foreign consumers, 
and part of the expenses of the government of 
England would be defrayed, by a tax on the land 
and labour of other countries. The tax on tea, 
which at present is paid by the people of England, 
and goes to aid the expenses of the government of 
England, might, if laid in China, on the exporta- 
tion of the tea, be diverted to the payment of the 
expenses of the government of China. 

Taxes on luxuries have some advantage over 
taxes on necessaries. They are generally paid 
from income, and therefore do not diminish the 
productive capital of the country. If wine were 
much raised in price in consequence of taxation, 
it is probable that a man would rather forego the 
enjoyments of wine, than make any important en- 
croachments on his capital, to be enabled to pur- 
chase it. They are so identified with price, that 
the contributor is hardly aware that he is paying 
a tax. But they have also their disadvantages. 
First, they never reach capital, and on some ex- 
traordinary occasions it may be expedient that 
even capital should contribute towards the public 
exigencies ; and secondly, there is no certainty as 
to the amount of the tax, for it may not reach even 
income. A man intent on saving will exempt 
himself from a tax on wine, by giving up the use 
of it. The income of the country may be undimin- 
ished, and yet the state may be unable to raise a 
shilling by the tax. 

Whatever habit has rendered delightful, will be 
relinquished with reluctance, and will continue to 



be consumed notwithstanding a verj heavy tax; 
but this reluctance has its limits, and experience 
every day demonstrates that an increase in the 
nominal amount of taxation, often diminishes the 
produce. One man will continue to drink the 
same quantity of wine, though the price of every 
boitle should be raised three shillings, who would 
yet relinquish the use of wine rather than pay 
four. Another will be content to pay four, yet 
refuse to pay five shillings. The same may be 
said of other taxes on luxuries : many would pay 
a tax of 5l. for the enjoyment which a horse affords, 
who would not pay lOZ. or 201. It is not because 
they cannot pay more, that they give up the use of 
wine and of horses, but because they will not pay 
more. Every man has some standard in his own 
mind by which he estimates the value of his enjoy- 
ments, but that standard is as various as the human 
character. A country whose financial situation has 
become extremely artificial, by the mischievous 
policy of accuranlating a large national debt, and 
a consequently enormous taxation, is particularly 
exposed to the inconvenience attendant on this 
mode of raising taxes. After visiting with a tax 
the whole round of luxuries ; after laying horses, 
cariiages, wine, servants, and all the other enjoy- 
ments of the rich, under contribution ; a minister 
is disposed to conclude that the country is arrived 
at the maximum of taxation, because by increasing 
the rate, he cannot increase the amount of any one 
of these taxes. But in this conclusion he will not 
be always correct, for it is very possible that such 



245 



a country could bear a very great addition to its 
burdens without infringing on the integrity of its 
capital. ■ 



CHAPTER XV. 

Taxes on other Commodities than Haw Produce, 

On the same principle that a tax on corn 
would raise the price of corn, a tax on any other 
commodity would raise the price of that commodity. 
If the commodity did not rise by a sum equal to 
the tax, it would not give the same profit to the 
producer which he had before, and he would re ^ 
move h is capital to some other employment . 

The taxing of all commodities, whether they be 
necessaries or luxuries, will, while money remains 
at an unaltered value, raise their prices by a sum 
at least equal to the tax.* A tax on the manufac- 

* It is observed by M. S^ay, "that a manufacturer is not 
enabled to make the consumer pay the whole tax levied on his 
commodity, because its increased price will diminish its con- 
sumption." Should this be the case, should the consumption 
be diminished, will not the supply also speedily be diminish- 
ed ? Why should the manufacturer continue in the trade if 
his profits ar e below the general level? M. Say appears here 
also to have forgotten the doctrine' which he elsewhere 
supports, " that the cost of production determines the price, 
below which commodities cannot fall for any length of time, 
because production would then be either suspended, or 
diminished." — ^Vol. ii. p. 26. 



^- 



^ 



248 

tured uecessaries of the labourer would have the 
same eifect on wages as a tax on corn, which dif- 
fers from other necessaries only by being the first 
and most important on the list ; and it would pro- 
duce precisely the same effects on the profits of 
stock and foreign trade. But a tax on luxuries 
would have no other effect than to raise their price. 
It would fall wholly on the consumer, and could 
neither increase wages, nor lower profits. 

Taxes which arc levied on a country 'for the 
purpose of supporting war, or for the ordinary ex- 
penses of the state, and which are chiefly devoted 
to the support of unproductive labourers, are taken 
from the productive industry of the country ; and 
every savins; which can be made from such ex- 
penses will be generally added to the income, if 
nftt to the capital of the contributors. When for 
the expenses of a year's war, twenty millijons are 
raised by means of a loan, it is the twenty millions 
which are withdrawn from the productive capital 
of the nation. The million per annum which is 
raised by taxes to pay the interest of this loan, 
is merely transferred frqm those who pay it to 
those who receive it, from the contributor to the 

/ " The tax in this Case falls then partly on the consumer 

i who is obliged to give more for the commodity taxed, and 

'i partly on the producer, who, after deducting the tax, will 

i receive less. The public treasury will be benefited by what the 

i purchaser pays in addition, and also by the sacrifice which the 

^ producer is obliged to make of a part of his profits. It is the 

^ effort of gunpowder, which acts at the same time on the bullet 

I which it projects, and on the gun which it causes to recoil." 

'• Vol. ii. p. 333. 



S49 

tax to the national creditor. The real expense is 
the twenty millions, anil not the interest which 
must be paid for it.^ Whether tlie interest be or 
be not paid? the country will neither be richer nor 
poorer. Government might at once have required 
the twenty millions in the shape of taxes ; in which 
case it would not have been necessary to raise an- 
nual taxes to the amount of a million. This how- 
ever would not have changed the nature of the 
transaction. An individual instead of being call- 
ed upon to pay lOOl. per annum, might have been 
obliged to pay 2000Z. once for all. It might also 
have suited his convenience rather to borrow this 



*'" Melon says, that the debts of a nation are debts due 
from the right hand to the left, by which the body is not 
weakened. It is true that the general wealth is not dimi- 
nished by the payment of the interest on arrears of the debt : 
The dividends are a value which passes from the hand of the 
contributor to the national creditor : Whether it be the na- 
tional creditor or the contributor who accumulates or con- 
sumes it, is I agree of little importance to the society; but 
the principal of the debt — what has become of that ? It ex- 
ists no more. The consumption which has followed the loan 
has annihilated a capital which will never yield any further 
revenue. The society is deprived not of the amount of in- 
terest, since that passes from one hand to the other, but of 
the revenue from a destroyed capital. This capital if it had 
been employed productively by him who lent it to the state, 
would equally have yielded him an income, but that income 
would have been derived from a real production, and would 
not have been furnished from the pocket of a fellow citi- 
zen." — Say, vol. ii. p. 357. This is both conceived and ex- 
pressed in the true spirit of the science, 
3S 



250 

SOOOZ., and to pay lOOZ. per annum for interest to 
the lender, than to spare the larger sum from his 
own funds. In one case it is a private transaction 
between A and B, in the other government gua- 
rantees to B the payment of the interest to be equal- 
ly paid by A, If the transaction had been of a 
private nature, no public record v/ould be kept of 
it, and it would be a matter of comparative indif- 
ference to the country whether A faithfully per- 
formed his contract to B, or unjustly retained the 
iOOl. per annum in his own possession. The 
country would have a general interest in the faith- 
ful performance of a contract, but with respect to 
the national wealth, it would have no other inter- 
est than whether A or B would make this 100?. 
most productive, but on this question it would nei- 
ther have the right nor the ability to decide. It 
might be possible, that if A retained it for his own 
use, he might squander it unproRtably, and if it 
were paid to B, he might add it to his capital, and 
employ it productively. And the converse would 
also be possible, B might squander it, and A might 
employ it productively. With a view to wealth 
only, it might be equally or more desirable that A 
should or should not pay it ; but the claims of justice 
and good faith, a greater utility, are not to be compel- 
led to yield to those of a less ; and accordingly, if 
the state were called upon to interfere, the courts 
of justice would oblige A to perform his contract. 
A debt guaranteed by the nation, differs in no re- 
spect from the above transaction. Justice and 
o-ood faith demand that the interest of the national 
debt should continue to be paid, and that those who 



25i 

have advanced their capitals for the general bene- 
fit, should not be required to forego their equitable 
claims, on the plea of expediency. 

But independently of this consideration, it is by 
no means certain, that political utility would gain 
any thing by the sacrifice of political integrity ; it 
does by no means follow, that the party exonerat- 
ed from the payment of the interest of the nation- 
al debt would employ it more productively than 
those to whom indisputably it is due. By cancel- 
ling the national debt, oue man's income might be 
raised from 1000/. to 1500/., but another man's 
would be lowered from 1500/. to 1000/. These 
two men's income now amount to S500/., they 
would amount to no more then. If it be the ob- 
ject of government to raise taxes, there would be 
precisely the same taxable capital and income in 
one case, as in the other. It is not then by the 
payment of the interest on the national debt that 
a country is distressed, nor is it by the exonera- 
tion from payment that it can be relieved. It is 
only by saving from income, and retrenching 
in expenditure, that the national capital can be in- 
creased ; and neither the income would be increas- 
ed, nor the expenditure diminished by the annihi- 
lation of the national debt. It is by the profuse 
expenditure of government, and of individuals, 
and by loans, that a country is impoverished ; ev- 
ery measure therefore which is calculated to pro- 
mote public and private economy will relieve the 
public distress ; but it is error and delusion, to 
suppose that a real national difficulty can be re- 
removed, by shifting it from the shoulders of one 



252 

class of the community, who justly ou£;ht to beat 
it, io the shoulders of another class, who upon 
every principle of equity ought to bear no more 
than their share. From what I have said, it must 
not be inferred that I consider the system of bor- 
rowing as the best calculated to defray the extras 
ordinary expenses of the state. It is a system 
which tends to make us less thrifty — to blind us 
to our real situation. If the expenses of a war be 
40 millions per annum, and the share which a 
man would have to contribute towards that annual 
expense were iOOL, he would endeavour, on be- 
ing at once called upon for his portion, to save 
speedily tlie iOOl. from his income. By the sys- 
tem of loans he is called upon to pay only the in- 
terest of this 100/., or 51. per annum, and consid- 
ers that he does enough by saving this 51. from his 
expenditure, and then deludes himself with the be- 
lief that he is as rich as before. The whole na- 
tion, by reasoning and acting in this manner, save 
only the interest of 40 millions, or two millions ; 
and thus, not only lose all the interest or profit 
which 40 millions of capital, employed productive- 
ly, would aiFord, but also 38 millions, the differ- 
ence between their savings and expenditure. If, 
as I before observed, each man had to make his 
own loan, and contribute his full proportion to the 
exigencies of the state, as soon as the war ceased, 
taxation would cease, and we should immediately 
fall into a natural state of prices. Out of his pri- 
vate funds, A might have to pay to B interest for 
the money he borrowed of him during the war, to 
enable him to pay his quota of the expense ; but 



253 

with this the nation would have no concern. A 
country which has accumulated a large deht is 
placed in a most artificial situation ; and although 
the amount of taxes, and the increased price of la- 
bour, may not, and 1 believe does not, place it un- 
der any other disadvantage with respect to foreign 
countries, except the unavoidable one of paying 
those taxes, yet it becomes the interest of every 
contributor to withdraw his shoulder from the bur- 
then, and to shift this payment from himself to 
another ; and the temptation to remove himself and 
bis capital to anotlier country, where he will be 
exempted from such burthens, becomes at last irre- 
sistible, and overcomes the natural reluctance 
which every man feels to quit the place of his 
birth, and the scene of his early associations. A 
country which has involved itself in the difficul- 
ties attending this artificial system, would act wise- 
ly by ransoming itself from them, at the sacrifice 
of any portion of its property which might be ne- 
cessary to redeem its deht. That which is wise 
in an individual, is wise also in a nation. A man 
who has 10000/., paying hira an income of 500Z., 
out of which he has to pay lOOZ. per annum to- 
wards the interest of the debt, is really worth on- 
ly 8000/., and would be equally rich, whether he 
continued to pay lOOZ. per annum, or at once, and 
for only once, sacrificed SOOOZ. But where, it is 
asked, would be the purchaser of the property 
which he must sell to obtain this 2000/. ? the jwi- 
swer is plain : the national creditor, who is to re- 
ceive this 2000/., will want an investment for his 
Bioney, and will be disposed either to lend it to 



254 

the laudholder, or manufacturer, or to purchase 
from them a part of the property of which they 
have to dispose. To such an ejQFect the stock- 
holders themselves would largely contribute. Such 
a scheme has been often recommended, but we 
have, I fear, neither wisdom enough, nor virtue 
enough, to adopt it. It must however be admitted, 
that during peace, our unceasing efforts should be 
directed towards paying off that part of the debt 
which has been contracted during war ; and that 
no temptation of relief, no desire of escape from 
present, and I hope temporary distresses, should 
induce us to relax in our attention to that great 
object. No sinking fund can be efficient for the 
purpose of diminishing the debt, if it be not derived 
from the excess of the public revenue over the 
public expenditure. It is to be regretted, that the 
sinking fund in this country is only such in name; 
for there is no excess of revenue above expendi- 
ture. It ought by economy, to be made what it 
is professed to be, a really efficient fund for the 
payment of the debt. If on the breaking out of 
any future war, we shall not have very considerably 
reduced our debt, one of two things must happen, 
either the whole expenses of that war must be 
defrayed by taxes raised from year to year, or we 
must, at the end of that war, if not before, submit 
to a national bankruptcy ; not that we shall be un- 
able to bear any large additions to the debt; it 
would be difficaU to set limits to the powers of 
a great nation ; but assuredly there are limits te 
the price, which in the form of perpetual taxation, 
individuals will submit to pay for the privilege 
mtnvly of living in their native country. 



255 

When a commodity is at a monopoly price, it u 
at the very highest price at which the consumers 
are willing to purchase it. Commodities are only 
at a monopoly price, when by no possible device 
their quantity can be augmented ; and when there- 
fore, the competition is wholly on one side — amongst 
the buyers. The monopoly price of one period 
may be much lower or higher than the monopoly 
price of another, because the competition amongst 
the purchasers must depend on their wealth, and 
tlieir tastes and caprices. Those peculiar wines, 
which are produced in very limited qnantity, and 
those works of art, which from their excellence or 
rarity, have acquired a fanciful value, will be ex- 
changed for a very diiferent quantity of the pro- 
duce of ordinary labour, according as the society 
is rich or poor, as it possesses an abundance or 
scarcity of such produce, or as it may be in a rude 
or polished state. The exchangeable value there- 
fore of a commodity which is at a monopoly price, 
is no where regulated by the cost of production. 

Raw produce is not at a monopoly price, because 
the market price of barley and wheat is as much 
regulated by their cost of production, as the market 
price of cloth and linen. The only diiference is 
this, that one portion of the capital employed in 
agriculture regulates the price of corn, namely, 
that portion which pays no rent ; whereas, in the 
production of manufactured commodities, every 
portion of capital is employed with the same 
results ; and as no portion pays rent, every portion 
is equally a regulator of price : corn, and other 
raw produce, can be augmented too in quantity, by 



^56 

the employment of more capital on the land, and 
tlierefore tliey are not at a monopoly price. There 
is competition among the sellers, as well as amongst 
the buyers. This is not the case in the production 
of those rare wines, and those valuable specimens 
of art, of which we have been speaking; their 
quantity cannot be increased, and their price is 
limited only by the extent of the power and will 
of the purchasers. Th© rent of these vineyards 
may be raised beyond any moderately assignable 
limits, because no other land being able to produce 
such wines, none can be brought into competition 
with them. 

The corn and raw produce of a Country, may 
indeed for a time sell at a monopoly price ; but 
they can do so permanently only when no more 
capital can be profitably employed on the lands, 
and when, therefore, their produce cannot be in- 
creased, At sucli time, every portion of land in 
cultivation, and every portion of capital employed 
^n the land will yield a rent, differing indeed in 
proportion to the difference in the return. At such 
a time too, any tax which may be imposed on the 
farmer, will fall on rent, and not on the consumer. 
He cannot raise the price of his corn, because, by 
the supposition, it is already at the higliest price 
at which the purchasers will or can buj it. He 
will not be satisfied with a lower rate of profits, 
than that obtained by other capitalists, and, there- 
fore, his only alternative will be to o])tain a reduc- 
tion of rent, or to quit his employment, 

IMr. Buchanan considers corn and raw produce 
iis at a monopoly price, because they yield a rent : 



257 

all commodities which yield a rent, he supposes must 
be at a monopoly price ; and thence he infers, that 
all taxes on raw produce would fallen the landlord, 
and not on the consumer. " Tlie price of corn," 
he says, *^ which always affords a rent, being in 
no respect influenced by the expenses of its pro- 
duction, those expenses must be paid out of the 
rent ; and when they rise ot fall, therefore, the con- 
sequence is not a higher or a lower price, but a 
higher or a lower rent. In this view, all taxes oa 
farm-servants, horses, or the implements of agricul- 
ture, are in reality land-taxes; the burden falling 
on the farmer during the currency of his lease, 
and on the landlord when the lease comes to be 
renewed. In like manner all those improved im- 
plements of husbandry which save expense to the 
farmer, such as machines for threshing and reaping, 
whatever gives him easier access to the market, 
such as good roads, canals, and bridges, though, 
they lessen the original cost of corn, do not lessea 
its market price. Whatever is saved by those im- 
provements, therefore, belongs to the landlord as 
part of his rent." 

It is evident that if we yield to Mr. Buchanan 
the basis on which his argument is built, namely, 
that the price of corn always yields a rent, all the 
consequences which he contends for would follow 
of course. Taxes on the farmer would then fall 
not on the consumer but on rent; and all improve- 
ments in husbandry would increase rent: but I 
hope I have made it sufficiently clear, that until a 
country is cultivated in every part, and up to the 
33 



, 2m 

highest degree^ there is always a portion of capi- 
tal employed on the land which yields no rent, and 
that it is this portion of capital, the result of 
which, as in manufactures, is divided between pro- 
fits and wages, that regulates the price of corni 
The price of corn then, which does not afford a 
rent, being influenced by the expenses of its pro- 
duction, those expenses cannot be paid out of rent. 
The consequence therefore of those expenses in- 
creasing, is a higher price, and not a lower rent.* 

It is remarkable that both xVdam Smith and Mr. 
Buchanan, who entirely agree that taxes on raw 
produce^ a land-tax, and tithes, all fall on the rent 
of land, and not on the consumers of raw produce, 
should nevertheless admit that taxes on malt would 
fall on the consumer of beer, and not on the rent 
of the landlord. Adam Smith's argument is so 
able a statement of the view which I take of the 
subject of the tax on malt, and every other tax on 
raw produce, that 1 cannot refrain from offering it 
to the attention of the reader. 

^^The rent and profits of barley land must al- 
ways be nearly equal to those of other equally fer- 
tile, and equally well cultivated land. If they 
were less, some part of the barley land would soon 

* "Manufacturing industry increases its produce in propor- 
tion to the demand, and tlie price falls ; but the produce of land 
cannot be so increased; and a high price is still necessary to pre- 
vent the consumption from exceeding the supply." Buchanan, 
vol. iv, p. 40. Is it possible that Mr. Buchanan can seriously 
assert, that the produce of the land cannot be increased, if the 
demand increases ? 



S39 

be turned to some other purpose; and if they were 
greater, more land would soon be turned to the 
raising of barley. When the ordinary price of 
any particular produce of land is at what may be 
called a monopoly price, a tax upon it necessarily 
reduces the rent and profit* of the land which 
grows it. A tax upon the produce of those pre-r 
cious vineyards, of which the wine falls so much 
short of the effectual demand, that its price is al- 
ways above the natural proportion to that of other 
equally fertile, and equally well cultivated land, 
would necessarily reduce the rent and profit* of 
those vineyards. The price of the wines being 
already the highest that could be got for the 
quantity commonly sent to market, it could not be 
raised higher without diminishing that quantity ; 
and the quantity could not be diminished without 
still greater loss, because the lands could not be 
turned to any other equally valuable produce. 
The whole weight of the tax, therefore, would fall 
upon the rent and profit ;* properly upon the 
reyit of the vineyard." " But the ordinary price 
of barley has never been a monopoly price ; and 
the rent and profit of barley land have never been 
above their natural proportion to those of other 
equally fertile and equally well cultivated land. 
The different taxes which have been imposed upon 
malt, beer, and ale, have never lowered the price 

* I wish the word " Profit" had been omitted. Dr. Smitli 
must suppose the profits of the tenants of these precious vine- 
yards to be above the general rate of profits. If they were not,, 
they would not pay the tax, unless they could shift it either 
to the landlord or consumer. 



260 

of hurley ; have never reduced the rent and profit* 
of barley land. The price of malt to the brewer has 
ponstantly risen in proportion to the taxes imposed 
upon it; and those taxes, together with the differ- 
ent duties upon beer and ale, have constantly either 
raised the price, or, what comes to the same thing, 
reduced the quality of those commodities to the 
i consumer. The final payment of those taxes has 
I fallen constanly upon the consumer, and not upon 
I the producer." On this passage Mr. Buchanan 
remarks, ^^A duty on malt never could reduce the 
price of barley, because, unless as much could be 
made of barley by malting it as by selling it un- 
malted, the quantity required would not be brought 
to market. It is clear, therefore, that the price of 
malt must rise in proportion to the tax imposed on 
it, as the demand could not otherwise be supplied. 
The price of barley, however, is just as much a 
monopoly price as that of sugar ; they both yield 
a rent, and the market price of both has equally 
lost all connexion with the original cost." 

It appears then to be the opinion of Mr. Bu- 
chanan, that a tax on malt would raise the price 
of malt, but that a tax on the barley from which 
malt is made, would not raise the price of barley; 
and therefore, if malt is taxed, the tax will be 
paid by the consumer; if barley is taxed, it will 
be paid by the landlord, as he will receive a di- 
minished rent. According to Mr. Buchanan then, 
barley is at a monopoly price, at the highest price 
which the purchasers are willing to give for it: but 

* See note, p. 259. 



261 

Bialt made of barley is not at a monopoly price, 
and consequently it can be raised in proportion to 
the taxes that may be imposed upon it. This 
opinion of Mr. Buchanan of the effects of a tax 
on malt appears to me to be in direct contradic- 
tion to the opinion he has given of a similar tax, a 
tax on bread. '^ A tax on bread will be ultimately 
paid, not by a rise of price, but by a reduction of 
rent.''* If a tax on malt would raise the price of 
beer, a tax on bread must raise the price of bread. 

The following argument of M. Say is founded 
on the same views as Mr. Buchanan's: "The 
quantity of wine or corn which a piece of land 
will produce, will remain nearly the same, what- 
ever may be the tax with which it is charged. The 
tax may take away a half, or even three fourths of 
its net produce, or of its rent if you please, yet the 
land would nevertheless be cultivated for the half 
or the quarter not absorbed by the tax. The rent, 
that is to say the landlord's share, would merely 
be somewhat lower. The reason of this will be 
perceived, if we consider, that in the case supposed, 
the quantity of produce obtained from the land, 
and sent to market, will remain nevertheless the 
same. On the other hand the motives on which 
the demand for the produce is founded continue 
also the same. 

" Now, if the quantity of produce supplied, and 
the quantity demanded, necessarily continue the 
same, notwithstanding the establishment or the 
increase of the tax, the price of that produce will 

* Vol. iii, p. 355. 



262 

not vary ; and if the price do not vary, the con-, 
samer will not pay the smallest portion of this tax. 
" Will it he said that the farmer, he who fur- 
nishes labour and capital, will, jointly with the 
landlord, bear the burden of this tax? certainly 
Dot; because the circumstance of the tax has not 
diminished the number of farms to be let, nor in- 
creased the number of farmers. Since in this in- 
stance also the supply and demand remain the 
same, the rent of ftirms must also remain the same. 
/ The example of the manufacturer of salt, who can 
'/ only make the consumers pay a portion of the tax, and 
i that of the landlord who cannot reimburse himself 
j in the smallest degree,^prove the error of those Avho 
i maintain, in opposition to the economists, that all 
i taxes fall ultimately on the consumer." — Vol.'ii. 
1 p. 338. 

If the tax ^"-took away half, or even three 
fourths of the net produce of the land," and the 
price of produce did not rise, how could those far- 
mers obtain the usual profits of stock who paid very 
moderate rents, having that quality of land which 
required a much larger proportion of labour to ob- 
tain a given result, than land of a more fertile qua- 
lity ? If the whole rent were remitted, they would 
still obtain lowei" profits than those in otiier trades, 
and would therefore not continue to cultivate theit 
\and, unless they could raise the price of its pro- 
duce. If the tax fell on the farmers, there would 
be fewer farmers disposed to hire farms ; if it fell 
on tlie landlord, many farms would not be let at all, 
for they would afford no rent. But from what 
fund would those pay the tax who produce corn 



£63 

without paying atly rent? It is quite clear that the tax 
must fall on the consumer. How would such laud, 
as M. Say describes in the foUowiug passage, pay 
a tax of one half or three fourths of its produce ? 

'^' We see in Scotland poor lands thus cultivated 
by the proprietor, and which could be cultivated 
by no other person. Thus too we see in the 
interior provinces of the United States, vast and 
fertile lands, the revenue of which alone would 
not be sufficient for the maintenance of the proprie- 
tor. These lands are cultivated nevertheless, but 
it must be by the proprietor himself, or, in other 
words, he must add to the rent, which is little or 
nothing, the profits of his capital and industry, to 
enable him to live in competence. It is well known 
that land, though cultivated, yields no revenue to 
the landlord when no farmer will be w illing to pay 
a rent for it : which is a proof that such land will 
give only the profits of the capital and of the indus- 
try necessary for its cultivation." — Sav^ vol. ii, 
p. 127. 



CHAPTER XVI. 

Poor Rates. 

We have seen that taxes on raw produce, and 
on the profits of the farmer, will fall on the consumer 
of raw produce ; since unless he had the power of 
remunerating himself by an increase of price, the 
tax would reduce his profits below the general 
level of profits, and would urge him to re- 
move his capital to some other trade. We 
have seen too that he could not, by deducting it 
from his rent, transfer the tax to his landlord ; be- 
cause that farmer who paid no rent, would, equal- 
ly with the cultivator of better land, be subject to 
the tax, whether it were laid on raw produce, or 
on the profits of the farmer. 1 have also attempt- 
ed to shew, that if a tax were general, and af- 
fected equally all profits, whether manufacturing 
or agricultural, it would not operate either on the 
price of goods or raw produce, but would be imme- 
diately, as well as ultimately, paid by the producers. 
A tax on rent, it has been observed, would fall on 
the landlord only, and could not by any means be 
made to devolve on the tenant. 

The poor rate is a tax which partakes of the na- 
ture of all these taxes, and under different circum- 



S6B 

stances falls on the consumer of raw produce and 
goods, on the profits of stock, and on the rent of 
land. It is a tax which falls with peculiar weight 
on the profits of the farmer, and therefore may he 
considered as affecting the price of raw produce. 
According to the degree in which it bears on man- 
ufacturing and agricultural profits equally, it will . 
be a general tax on the profits cf stock, and will 
occasion no alteration in the price of raw produce 
and manufactures. In proportion to the farmer*s 
inability to remunerate himself, by raising the 
price of raw produce, for that portion of the tax 
which peculiarly affects him, it will be a tax on 
rent, and will be paid by the landlord. To know 
then the operation of the poor rate at any particu- 
lar time, we must ascertain whether at that time 
it affects in an equal or unequal degree the profits 
of the farmer and manufacturer ; and also whether 
the circumstances be such as to afford to the farm- 
er the power of raising the price of raw produce. 

The poor rates are professed to be levied on the 
farmer in proportion to his rent; and accordingly, 
the farmer who paid a very small rent, or no rent 
at all, should pay little or no tax. If this were 
true, poor rates, as far as they arc paid by the agri- 
cultural class, would entirely fall on the landlord, 
and could not be shifted to the consumer of raw 
produce. But I believe that it is not true ; the 
poor rate is not levied according to the rent which 
a farmer actually pays to Ids landlord ; it is pro- 
portioned to the annual value of his land, whe- 
ther that annual value be given to it by the capital 
of the landlord or of the tenant. 



467 

If two farmers rented land of two different qual- 
ities in the same parish, the one paying a rent of 
100/. per annum for 50 acres of the most fertile 
land, and the other the same sum of 100/. for 1000 
acres of the least fertile land, they would pay the 
same amount of poor rates, if neither of them at- 
tempted to improve the land ; but if the farmer of 
the poor land, presuming on a very long lease, 
should be induced at a great expense to improve 
tiie productive powers of his land, by manuring, 
draining, fencing, &c., he would contribute to the 
poor rates, not in proportion to the actual rent paid 
to the landlord, but to the actual annual value of 
the land. The rate miglit equal or exceed the 
l^nt ; but whether it did or not no part of this rate 
would be paid by the landlord. It would have 
been previously calculated upon by the tenant ; and 
if the price of produce were not sufficient to com- 
pensate him for all his expenses, together with 
this additional charge for poor rates, his improve- 
ments would not have been undertaken. It is evi- 
dent then that the tax in this case is paid by the 
consumer ; for if there had been no rate, the same 
improvements would have been undertaken, and 
the usual and general rate of profits would have 
been obtained on the stock employed, with a 
lower price of corn. ^'^ 

Nor would it make the slighest difference in? 
this question, if the landlord had made these im- 
provements himself, and had in consequence 
raised his rent from 100/. to 500/. ; the rate would 
be equally charged to the consumer ; for 'whether 
lie should expend a large sum of money on his 



land, would depend on the rent, or what is called 
rent, which he would receive as a remuneration for 
it ; and this again would depend on the price of 
corn, or other raw produce, being sufficiently high 
not only to cover this additional rent, but also the 
rate to which the land would be subject. But if 
at the same time all manufacturing capital con-., 
tributed to the poor rates, in the same proportion 
as the capital expended by the farmer or landlord 
in improving the land, then it would no longer be 
a partial tax on the profits of the farmer's or land- 
lord's capital, but a tax on the capital of all pro- 
ducers ; and therefore it could no longer be ^^hii'ted 
either on the consumer of raw produce or on the 
landlord. The farmer's profits would feel the 
effect of the rate no more than those of the manu- 
facturer : and the former could not, any more tlian 
the latter, plead it as a reason for an advance in 
the price of his commodity. It is not the absolute, 
but the relative fall of profits, which prevents 
C9,pital from being employed in any particular trade : 
it is the difference of profit which sends capital 
from one employment to another. 

It must bo acknowledged bowever, that in the 
actual state of the poor rates, a much larger 
amount falls on the farmer than on tbe manufcicturer, 
in proportion to their respective profits ; the farmer 
being rated according to the actual productions 
which he obtains, the manufacturer only according 
to the value of the buildings in which he works, 
without any regard to the value of the machinery, 
labour, or stock, which he may employ. From 
this circumstance it follows, that the farmer will be 



269 

enabled to raise the price of his produce by this 
whole difference. For since the tax falls unequally, 
and peculiarly on liis profits, he would have less 
motive to devote his capital to the land, than to 
employ it in some other trade, unless the price of 
raw produce were raised. If on the contrary, the 
rate had fallen with greater weight on the manufac- 
turer than on the farmer, he would have been 
enabled to raise the price of his goods by the 
amount of the difference, for the same reason that 
the farmer, under similar circumstances, could 
raise the price of raw produce-. In a society there- 
fore, which is extending its agriculture, when poor 
rates fall with peculiar weight on the land, they 
will be paid partly by the employers of capital in 
a diminution of the profits of stock, and partly by 
the consumer of raw produce in its increased price. 
In such a state of things, the tax may, under some 
circumstances, be even advantageous rather than 
injurious to landlords ; for if the tax paid by the 
cultivator of the worst laud, be liiglier in proportion 
to the quantity of produce obtained, than that paid 
by tlue farmers of the more fertile lands, the rise 
in the price of corn, which will extend to all corn, 
will more than compensate the latter for the tax. 
This advantage will remain with them during the 
continuance of their leases, but it will afterwards 
be transferred to their landlords. This then would 
be the effect of poor rates in an advancing society ; 
but in a stationary, or in a retrograde country, so 
far as capital could not be Withdrawn from the laud, 
if a further rate were levied for the support of the 
poor, that part of it which fell on agriculture 



S70 

would be paid, during the current leases, by tLe 
farmers, but at the expiration of those leases it 
would almost wholly fall on the landlords. The 
farmer, who during his former lease, had expended 
his capital in improving his land, if it were still 
in his own hands, would he rated for this new tax 
according to the new value which the land had 
acquired by its improvement, and this amount he 
would be obliged to pay during hi^ lease, although 
his profits might thereby be reduced below the 
general rate of proiits ; for the capital which he 
has expended may be so incorporated with the 
land, that it cannot be removed from it. If indeed 
he, or his landlord, (should it have been expend.ed 
by him) were able to remove this capital, and 
thereby reduce the annual value of the land, the 
rate would proportionably fall, and as the produce 
would at the same time be diminished, its price 
would rise; he would be compensated for the tax, 
by charging it to the consumer, and no part would 
fall on rent ; but this is impossible, at least with 
respect to some proportion of the capital, and con- 
sequently in that proportion the tax will be paid 
by the farmers during their leases, and by land- 
lords at their expiration. This additional tax, as 
far as it fell unequally on manufacturers, would 
under such circumstances be added to the price of 
their goods ; for there can be no reason why their 
profits should be reduced below the general rate of 
profits, when their capitals might be easily remov« 
cd to agriculture.* 

^ In a former part of this work, I have noticed the difference 
hi^lween rent, properly so called, and the remuneration paid 



271 

to the landlord under that n^me, for the advantages which the 
expenditure of his capital has procured to his tenant ; but I 
did not perhaps sufficiently distinguish the difference which 
would arise from the different modes in which this capital 
might be applied. As a part of this capital, when once ex- 
pended in the improvement of a farm, is inseparably amalga- 
mated with the land, and tends to increase its productive 
powers, the remuneration paid to the landlord for its use is 
strictly of the nature of rent, and is subject to all the laws of 
rent. Whether the improvement be made at the expense of 
the landlord or the tenant, it will not be undertaken in the 
first instance, unless there is a strong probability that the re- 
turn will at least be equal to the profit that can be made by 
the disposition of any other equal capital ; but when once made, 
the return obtained will ever after be wholly of the nature of 
rent, and will be subject to all the variations of rent. Some 
of these expenses however, only give advantages to the land 
for a limited period, and do not add permanently to its pro- 
ductive powers ; being bestowed on buildings, and other perish- 
able improvements, they require to be constantly renewed, 
and therefore do not obtain for the landlord any permanent 
addition to his real rent. 



CHAPTER XVII. 

On Sadden Changes in the Channels of Trade. 

A great manufacturing country is peculiarly 
exposed to temporary reverses and contingencies, 
produced by the removal of capital from one em- 
ployment to another. The demands for the pro- 
duce of agriculture are uniform^ they are not under 
the influence of fashion, prejudice,, or caprice. To 
sustain life, food is necessary, and the demand for 
food must continue in all ages, and in all coun- 
tries. It is diiferent with manufactures ; the de- 
mand for any particular manufactured commodity, 
is subject not only to the wants, but to the tastes 
and caprice of the purchasers. A new tax too 
may destroy the comparative advantage wliidi a 
country before possessed in the manufacture of a 
particular commodity ; or the effects of war may 
so raise the frieght and insurance on its convey- 
ance, that it can no longer enter into competition 
with the home manufacture of the country to which 
it was before exported. In all sucli cases, consi- 
derable distress, and no doubt some loss, will be 
experienced by those who are engaged in the 
manufacture of such commodities ; and it will be felt 
not only at the time of the ehange but tltfough 
35 



the whole interval (luring which they are removing 
their capitals, and the labour which they can com- 
mand, from one employment to another. 

Nor will distress be experienced in that country 
ajone w'here such difficulties originate, hut in the 
countries to which its commodities were before ex- 
ported. No country can long import unless it also 
exports, or can long export unless it also imports. 
If then any circumstance should occur, which 
should permanently prevent a country from im- 
porting the usual amount of foreign commodities, 
it will necessarily diminish the manufacture of 
some of those commodities which were usually ex- 
ported ; and although the totnl value of the pro-, 
ductions of the country will probably be but little 
altered, since the same capital will be employed, 
yet they will not be equally abundant and cheap ; 
and considerable distress will be experienced 
through the change of employments. If by the 
employment of 10090/. in the manufiicture of 
cotton goods for exportation, we imported annually 
3000 pair of silk stockings of the value of 2000/., 
and by the interruption of foreign trade we should 
be obliged to withdraw this capital from tiie manu- 
facture of cotton, and employ it ourselves in the 
manufacture of stockings, we should still obtain 
stockings of the value of 2000/. provided no part 
of the capital were destroyed ; but instead of 
having 3000 pair, we migiitonly have 2,500. In 
the removal of the capital from the cotton to the 
stocking trade, much distress might be experienced, 
but it would not considerably impair the value of 



§75 

the national property, although it might lessen the 
quantity of our annual [>roductions 

The commencement of war after a long peace, 
or of peace after a long Avar, genevally produces 
considerable distress in trade. It changes in a 
great degree the nature of tht? employments to 
which the respective capitals of countries were 
before devoted ; and during the interval while they 
are settling in the situations which new circum- 
stances have made the most beneficial, much fixed 
ciipital is unemployed, perhaps wholly lost, and 
labourers are without full employment. The dura- 
tion of this distress will be longer or shorter 
according to the strength of that disinclination, 
which most men feel to abandon that employment 
of their capital to which they have long been 
accustomed. It is often protracted too by the 
restrictions and prohibitions, to which the absurd 
jealousies which prevail between the different 
states of the commercial commonwealth give rise. 

The distress which proceeds from a revulsion of 
trade, is often mistaken for that which accompanies 
a diminution of the national capital, and a retro- 
grade state of society ; and it would perhaps be 
difficult to point out any mtirks by which they may 
be accurately distinguished. 

When, however, such distress immediately 
accompanies a change from war to peace, our 
knowledge of the existence of such a cause will 
make it reasonable to believe, that the funds for 
the mainteuanfee of labour have rather been divert- 
ed from their usual channel than materially im- 
paired, and tjiat after temporary suffering, the na- 



S76 

tion will again advance in prosperity. It must be 
remembered too that the retrograde condition is 
always an unnatural state of society. Man from 
youth grows to manhood, then decays, and dies ; 
but this is not the progress of nations. When 
arrived to a state of the greatest vigour, their 
further advance may indeed be arrested, but their 
natural tendency is to continue for ages, to sustain 
undiminished their wealth, and their population. 

In rich and powerful countries wiiere large 
capitals are invested in machinery, more distress 
will be experienced from a revulsion in trade, than 
in poorer countries where there is proportionally 
a much smaller amount of fixed, and a much larger 
amount of circulating capital, and where conse. 
quently more work is done by the labour of men. 
It is not so diQicult to withdraw a circulating as a 
fixed capital, from any employment in which it 
may be engaged. It is often impossible to divert 
the machinery which may have been erected for one 
manufacture, to the purposes of another ; but the 
clothing, the food, and the lodging of the labourer 
in one employment may be devoted to the support 
of the labourer in another, or the same labourer 
may receive the same food, clothing, and lodging, 
Avlnlst his employmeni is changed. This, however, 
is an evil tq which a rich nation must submit; and 
it would not be more reasonable to complain of it, 
than it would be in a rich merchjint to lament that 
liis ship was exposed to the dangers of the sea, 
whilst liis poor neiglsbuurs cottage -was safe frore 
all such liazard. 



From contingencies of this kind, though in an 
inferior degree, even agriculture is not exempted. 
War, which in a commercial country, interrupts 
the commerce of states, frequently prevents the ex- 
portation of corn from countries where it can be 
produced with little cost, to others not so favour- 
ably situated. Under such circumstances an un- 
usual quantity of capital is drawn to agriculture, 
and the country which before imported becomes 
independent of foreign aid. At the termination of 
the war, the obstacles to importation are removed, 
and a competition destructive to the home-grower 
commences, from which he is unable to withdraw, 
without the sacrifice of a great part of his capita.U 
The best policy of the state would be, to lay a tax, 
decreasing in amount from time to time, on the im- 
portation of foreign corn, for a limited number of 
years, in order to afford to the home-grower an 
opportunity to withdraw his capital gradually from 
the land. In so doing the country might not be 
making the most advantageous distribution of its 
capital, but the temporary tax to which it was sub- 
jected, would be for the advantage of a particular 
class, the distribution of whose capital was highly 
useful in procuring a supply of food when importa- 
tion was stopped. If such exertions in a period 
of emergency were follovved by risk of ruin on the 
termination of the difficulty, capital would shun 
such an employment. Besides tlie usual profits of 
stock, farmers would expect to be compensated for 
the risk which they incurred of a sudden influx of 
corn, and therefore the price to the consumer, at the 
seasons when he most required a supply, would 



27» 

he enhanced, not only by the superior cost of 
growing corn at home, but also bj the insurance 
which he would have to pay, in the price, for the 
peculiar risk to which this employment of capHal 
was exposed. Notwithstanding then, that it would 
be more productive of wealth to the country, at 
whatever sacrifice of capital it might be dona, to 
allow the importation of cheap' corn, it would 
perhaps be advisable to charge it with a duty for a 
few years. 

In examining the question of rent, we found, 
that with every increase in the suj)ply of corn, and 
with the consequent fall of its price, capital would 
be withdrawn from tlie poorer land ; and hind of 
abetter description, which would then pay no rent, 
would become the standard by which the natural 
price of corn would be regulated. At 4/. per 
quarter, land of an inferior quality, which may 
be designated by No. 6, might be cultivated ; at 
2l. iOs. No. 5 ; at 3/. No. 4, and so on If corn, 
in consequence or permnnent abundance, fell to 
dl. iOs. the capital employed tfiTNo. 6 would cease 
to be employed ; for it was only when corn was at 
il. that it could obtain the general profits, even 
Mthout paying rent : it would therefore be with- 
drawn to manufacture those commodities with 
which all the corn grown on No. 6 would be pur- 
chased and imported. In this employment it 
would necessarily he more productive to its owner, 
or it would not be withdrawn from the other ; for if 
he could obtain more corn by growing it on laud 
for v/hich lie paid up rent, than by manufacturing 
a commodity with which he purcliased it, its pricei 
cuuld. not be under 4/. 



S79 

It liasj however, been saitl that capital cannot be 
withdrawn from the land ; that it takes the form of 
expenses, which cannot Jbe recovered, such as ma- 
nuring, fencing, draining, &c., which are necessa- 
rily inseparable from the hmd. This is in some 
degree true ; but that capital w hich consists of cat- 
tle, sheep, hay and corn ricks, carts, &c. may be 
withdrawn; and it always becomes a matter of cal- 
culation whether these shall continue to be employ- 
ed on the land, notwithstanding the low price of 
corn, or whether they shall be sold, and their value 
transferred to another employment. 

Suppose, how-ever, the fact to be as stated, and 
that no part of the capital could be withdrawn ; the 
farmer w ould continue to raise corn, and precisely the 
same quantity too, at whatever price it miglit sell ; 
for it could not be his interest to produce less, and 
if he did not so employ his capital, he would ob- 
tain from it no return whatever. Corn could not 
be imported, because he would sell it lower than 
SLlOs. rather than not sell it at all, and by the sup- 
position the importer could not sell it under that 
price. Although theu the farmers, who cultivated 
land of this quality, would undoubtedly be injured 
by the fall in the exchaiigahle value of the commo- 
dity which they pitiduced, — how would the coun- 
try be affected? We should have precisely the 
same quantity of every commodity produced, but 
raw produce and corn would sell at a much cheap- 
er price. The capital of a country consists of its 
commodities, and as these would be the same as be- 
fore, reproduction would go on at the same rate. 



This low price of corn would however only aiFord 
the usual profits of stock to the laud, No. 5, which 
would then pay no rent, and the rent of all better 
land would fall : wages would also fall, and pro- 
fits Would rise. 

However low the price of corn might fall ; if 
capital could not be removed from the land, and the 
demand did not increase, no importation would 
take place ; for the same quantity as before would 
be produced at home. Although there would be a 
different division of the produce, and some classes 
would be benefited, and others injured, the aggre- 
gate of production would be precisely the same, 
and the nation collectively would neither be richer 
nor poorer. 

But there is this advantage always resulting from 
a relatively low price of corn, — that the divi- 
sion of the actual production is more likely to in- 
ci'case the fund for the maintenance of labour, inas- 
much as more will be allotted, under the name of 
profit, to the productive class, a less, under the 
name of rent, to the unproductive class. 

This is true, even if the capital cannot be 
withdrawn from the land, and must be em- 
ployed there, or not be employed at all : but if 
great part of the capital could be withdrawn, as it 
evidently could, it will be only withdrawn, when 
it will yield more to the owner !)y being withdrawn 
than by being suffered to remain where it was ; it 
will only be withdrawn tlicn, when it can else- 
where be enii)loyed more productively both for the 
owner and the public. He consents to sink that 
part of his capital which cannot be separated from 



281 

the land, be.cause with that part which he can take 
away, he can obtain a greater value, and a greater 
quantity of raw produce, than by not sinking this 
part of the capital. His case is precisely similar 
to that of a man who has erected machinery in his 
manufactory at a great expense, machinery which 
is afterwards so much improved upon by more mo- 
dern inventions, that the commodities manufactured 
by him very much sink in value. It would be en- 
tirely a matter of calculation with him whether he 
should abandon the old machinery, and erect the 
more perfect, hosins^ all the value of the old, St' 
continne to avail himself of its comparatively fee- 
ble powers. Who, under such circumstances, 
would exhort him to forego the use of the better 
machinery, because it would deteriorate or annihi... 
late the value of the old? Yet this is the argument 
of those who would wish us to prohibit the impor^ 
iation of corn, because it will deteriorate or annihi- 
late that part of tlie capital of the farmer which is 
for ever sunk in land. They do not see that the 
end of all commerce is to increase production, and 
that by increasing production, though you niay oc- 
casion partial loss, you increase the general liappi- 
ness. To be consistent, they should endeavour to 
arrest all improvements in agriculture and manu- 
factures, and all inventions of machinery ; for 
though these contribute to general abundance, and 
therefore to the general happiness, they never fail, 
at the moment of their introduction, to deteriorate 
or annihilate a part of the existing capital of farm- 
ers and manufacturers. 
8f» 



:a8a 

Agriculture like all other trades, and particu-^ 
larly in a commercial country, is subject to a re- 
action, which, in an opposite direction, succeeds 
the action of a strong stimulus. Thus, when war 
interrupts the importation of corn, its consequent 
high price attracts capital to the land, from the 
large profits which such an employment of it af- 
fords ; this will probably cause more capital to be 
employed, and more raw produce to be brought to 
market than the demands of the country require. 
In such case, the price of corn will fall from the ef- 
fects of a glut, and much agricultural distress will 
be produced, till the average supply is brought to 
a level with the average demand. 



CHAPTER XVIII. 

FaluB and Riches, their Distinctive Prajperties. 

'^ A raau is ricli or poor." says Adam Smith, 
^* according to the degree in which he can afford 
to enjoy the necessaries, conveniences, and amuse- 
ments of hnniaii iife.'^ 

Value then essentially differs from riches, for 
value depends not on abundance, but on the diflS- 
ciilty or facility of production. The labour of a 
million of men in manufactures, will always produce 
the same value, but will not always produce the 
same riches. By the invention of machinery, by 
improvements in skill, by a better division of la- 
bour, or by tiie discovery of new markets, where 
more advantageous exchanges may be made, a mil- 
lion of men may produce double, or treble the 
amount of riches, of " necessaries, conveniences, 
and amusements,'' in one state of society, that they 
could produce in another, but they will not on that 
account add any thing to value ; for every thing 
rises or falls in value, in proportion to the facility 
or difficulty of producing it, or in other words, in 
proportion to the quantity of labour employed on 
its production. Suppose with a given capital, the 
labour of a certain number of men produced 1000 



281 

pair of stockings^ and that by inventions in ma 
chinery, the same number of men can produce SOOO 
pair, or that they can continue to produce 1000 
pair, and can produce besides 500 hats ; then the 
value of the SOOO pair of stockings ; or of the 
1000 pair of stockings, and &00 hats, will be nei<= 
ther more nor less than that of the 1000 pair of 
stockings before the introduction of machinery; 
for they will be the produce of the same quantity 
of labour. But the value of the general mass of 
commodities will nevertheless be diminished ; for 
although the value of the increased quantity pro- 
duced in consequence of the improvement will be 
the same exactly as the value would have been of 
tb© less quantity that would have been produced, 
had no improvement taken place, an effect is also 
produced on the portion of goods still unconsum- 
ed, which were manufactured previously to the im- 
provement; the value of those goods will be re- 
duced, inasmuch as they must fall to the level, 
quantity for quantity, of the goods produced un- 
der all the advantages of the improvement : and 
the society will, notwithstanding the increased 
quantity of its commodities, notwithstanding its 
augmented riches, and its augmented means of 
enjoyment, have a less amount of value. By 
constantly increasing tlie facility of production, 
we constantly diminish the value of some of 
the commodities before produced, though by the 
same means we not only add to the national 
riches, but also to the power of future production. 
Many of the errors in political economy have 
arisen from errors on this subject, from considering 



an increase of riclies, and an increase of value, 
as meaning the same tbins;, and from unfound- 
ed notions as to what constituted a standard 
measure of value. One man considers money 
as a standard of value, and a nation grows richer 
or poorer, according to him, in proportion as 
its commodities of all kinds can exchange for 
more or less money. Others represent money as 
a very convenient medium for the purpose of bar- 
ter, but not as a proper measure by which to esti- 
mate the value of other things : the real measure 
of value according to them is corn,* and a country 
is rich or poor, according as its commodities will 
exchange for more or less corn. There are others 
again, who consider a country rich or poor, accord- 
ing to the quantity of labour that it can purchase.f 
But why should gold, or corn, or labour, be the 
standard measure of value, more than coals or 
iron ? — more than cloth, soap, candles, and the 
other necessaries of the labourer?— -why, in short, 
should any commodity, or all commodities together, 

* Adam Smith says, « that the difference between the real 
and the nominal price of commodities and labour, is not a 
matter of mere speculation, but may sometimes be of consid- 
erable use in practice." I agree with him ; but the real price 
of labour and commodities, is no more to be ascertained by 
their price in goods, Adam Smith's real measure, than by their 
price in gold and silver, his nominal measure. The labourer 
is only paid a really high price for his labour, when his wages 
will purchase the produce of a great deal of labour. 

t In vol. i, p. 108, M. Say infers, that silver is now of the 
same value, as in the reign of Louis XIV. "because the same 
quantity of silver will buy the same quantity of corn." 



286 

be the stand artl, when such a staudard is itself sub- 
juct to flaetiiations in value ? Corn, as well as 
gold, may from difficulty or facility of production, 
vary 10, 20, or 30 per cent., relatively to other 
things ; why should we always say, that it is those 
other things wliich iiave varied, and not the corn? 
That commodity is alone invariable, which at all 
times requires the same saciiiice of toil and la- 
bour to produce it Of such a commodity we have 
no knoYv ledge, but we may hypothelically argue 
and speak about it, as if we had ; and may im- 
prove our knowledge of the science, by shewing 
distinctly the absolute inapplicability of all the 
standards which have been hitherto adopted. But 
supposing either of these to be a correct stand ar<J 
of value, still it would not be a standard of 
riches, for riches do not depend on value. A 
man is rich or poor, according to the abundance of 
necessaries and luxuries, which he can command ; 
and whether the exchangeable value of these for 
money, for corn, or for labour, be high or low, they 
will equally contribute to the enjoyment of their 
possessor. It is through confounding the ideas of 
value and wealth, or riches, that it has been assert- 
ed, that by diminishing the quantity of commodi^ 
tics, that is to say, of the necessaries, conveniences, 
and enjoyments of human life, riches may be iui 
creased. If value were the measure of riches this 
could not be denied, because by scarcity the value 
of commodities is raised ; but if Adam Smith be 
correct, if riches consist in necessaries and enjoy- 
ments, then they cannot be increased by a diminu- 
tion of quantity. 



287 

It is true, that the man in possession of a scarce 
commodity is richer, if by means of it he can command 
more of the necessaries antl enjoyments of human 
iifie; hut as the general, stock out of which each 
man's riches are drawn, is diminished in quantity, 
by all that any individual takes from it, other 
men's shares must necessarily be reduced in pro- 
portion as this favoured individual is able to ap- 
propriate a greater quantity to himself. 

Let water become scarce, says lord Lauderdale, 
and be exclusively possessed by an individual, and 
you will increase his riches, because water will 
then have value; and if wealth be the aggregate 
of individual riches, you will by the same means also 
increase wealth. You undoubtedly will increase the 
riches of this individual, but inasmuch as the 
farmer must sell a part of his corn, the shoemaker 
a part of his shoes, and all men give up a portion 
of their possessions for the sole purpose of supply- 
ing themselves with water, whicli they before liad 
for nothing, they are poorer by the wiiole quantity 
of commodities which they are obliged to devote to 
this purpose, and the proprietor of water is bene- 
fited precisely by the amount of tlieir loss. The 
same quantity of w^ater, and the same quantity of 
commodities, are enjoyed by the whole society, but 
tJiey are differently distributed. This is however 
supposing rather a monopoly of water than a scarci- 
ty of it. If it should be scarce, then the riches of 
the country ahd of individuals would be actually 
diminished, inasmuch as it would be deprived of 
a portion of one of its enjoyments. The farmeV 



would not oiily have less corn to exchange for the 
other coramodities which might be necessary or de- 
vsirable to him, but he and every other individual 
Would be abridged in the enjoyment of one of the 
most essential of their comforts^ Not only would 
there be a different distribution of riches, but an 
actual loss of wealth. 

It may be said then of two countries possessing 
precisely the same quantity of all the necessaries 
and comforts of life, that they are equally rich, but 
the value of their respective riches would depend 
on the comparative facility or diflBculty with which 
they were produced. For if an improved piece of 
machinery should enable us to make two pair of 
stockings, instead of one, without additional la- 
bour, double the quantity would be given in ex- 
change for a yard of cloth. If a similar improve- 
ment be made in the ma,nufacture of cloth, stock- 
ings and cloth will exchange in the same propop* 
tions as before, but they will both have fallen in 
value ; for in exchanging them for hats, for gold, 
or other commodities in general, twice the former 
quantity must be given. Extend the improvement 
to the production of gold, and every other commo- 
dity ; and they will all regain their former propor- 
tions. There will be double the quantity of com- 
modities annually produced in the country, and 
therefore the wealth of the country will be dom 
bled, but this wealth will not have increased ill 
value. 

Although Adam Smith has given th« correct 
description of riches, which I have more than 



289 

once noticed, he afterwards explains them differ- 
ently, and says, ^^ that a man must be rich or poor 
according to the quantity of labour which he can 
afford to purchase." Now this description differs 
essentially from the other, and is certainly incorret; 
for suppose the mines were to become more pro- 
ductive, so that gold and silver fell in value, from 
the greater facility of their production ; or that 
velvets were to be manufactured with so much less 
labour than before, that they fell to half their former 
value ; the riches of all those who purchased those 
commodities would be increased : one man might 
increase the quantity of his plate, another might 
buy double the quantity of velvet ; but with the 
possession of this additional plate, and velvet, 
they could employ no more labour than before ; 
because as the exchangeable value of velvet and 
of plate would be lowered, they must part with 
proportionally more of these species of riches to 
purchase a day's labour. Riches then cannot 
be estimated by the quantity of labour which they 
can purchase. 

From what has been said, it will be seen that 
the wealth of a country may be increased in two 
ways : it may be increased by employing a greater 
portion of revenue in tlie maintenance of produc- 
tive labour, — which will not only add to the quanti- 
ty, but to the value of the 4nass of commodities ; 
or it may be increased, without employing any 
additional quantity of labour, by making the same 
quantity more productive, — which will add to the 
abundance, but not to the value of commodities. 



wo 

In the first case, a country would not only be^ 
come rich, but the value of its riches would increase. 
It would become rich by parsimony; by diminish- 
ing its expenditure on objects of luxury and enjoy- 
ment; and employing those savings in reproduc- 
tion. 

In the second case, there will not necessarily be 
either any diminished expenditure on luxuries and 
enjoyments, or any increased quantity of productive 
labour employed, but with the same labour more 
would be produced ; wealth vi^ould increase, but 
not value. Of these two modes of increasing 
wealth, the last must be preferred, since it produces 
the same effect without the privation and diminu- 
tion of enjoyments, which can never fail to accom- 
pany the first mode. Capital is that part of the 
wealth of a country which is employed wi|,h a view 
to future production, and may be increased in the 
same manner as wealth. An additional capital 
will be equally efficacious in the production of 
future wealth, whether it be ol)tained from improve- 
ments in skill and machinery, or from using more 
revenue reproductivelyj for wealth always de- 
pends on the quantity of commodities produced, 
without any regard to the facility with which the 
instruments employed in production may have been 
procured. A certain quantity of clothes and pro- 
visions will maintain and employ the same number 
of men, and will therefore procure the sam& 
quantity of work to be done, whetiier they be pro^ 
duced by the labour of 100 or of 200 men ; but 
they will be of twice the value if SOO have been 
employed on their production. 



291 

M. Say appears to me to have been singularly 
unfortunate in his definition of riches and value in 
the first chapter of his excellent work : the follow- 
ing is the substance of his reasoning : riches, lie 
observes, consist only of things which have a value 
in themselves : riches are great, when the sum of 
the values of which they are composed is great. 
They are small when the sum of their values is 
small. Two things having an equal value, are 
riches of equal amount. They are of equal value, 
when by general consent they are freely exchanged 
for each other. Now, if mankind attach value to 
a thing, it is on account of the uses to which it is 
applicable. .This faculty, which certain things 
have, of satisfying the various wants of mankind^ 
I call utility. To create objects that have a value 
of any kind is to create riches, since the utility of 
things is the first foundation of their value, and it 
is the value of things which constitutes riches. 
But we'^do not create objects : all we can do is to 
reproduce matter under another form — we can give 
it utility. Production then is a creation, not of 
matter but of utility, and it is measured by the 
value arising from the utility of the object produced. 
The utility of any object, according to general 
estimation, is pointed out by the quantity of other 
commodities for which it will exchange. This 
valuation, arising from the general estimate formed 
by society, constitutes \yhat Adam Smith calls 
Value in exchange ; what Turgot calls appreciable 
value ; and what we may more briefly designate 
by the term value. 



Thus far M. Say^ but in hi$ account of value 
and riches he has confounded two things which 
ought always to be kept separate, and which are 
called by Adam Smith, value in use and value in 
exchange. If by an improved machine I can, 
with the same quantity of labour, make two pair 
of stockings instead of one, I in no way impair the 
utility of one pair of stockings, though I diminish 
their value. If then I had precisely the same 
quantity of coats, shoes, stockings, and all other 
things, as before, I should have precisely the same 
quantity of useful objects, and should therefore be 
equally rich, if utility were the measure of riches ; 
but I should have a less amount of value, for my 
stockings would be of only half their former value. 
Utility then is not the measure of exchangeable 
value. 

If we ask M. Say in what riches consist, he 
tells us in the possession of objects having value. 
If we then ask him what he means by value, he 
tells us that things are valuable in proportion as 
they possess utility. If again we ask him to ex- 
plain to us by what means we are to judge of the 
utility of objects, he answers, by their value. 
Thus then the measure of value is utility, and the 
measure of utility is value. 

M. Say, in speaking of the excellencies and 
imperfections of the great work of Adam Smith, 
imputes to him, as an error, that '^' he attributes to 
the labour of man alone the power of producing 
value. A more correct analysis shews us that 
value is owing to the action of labour, or rather 
the industry of man^ combined with the action of 



298 

those agents which nature supplies, and with that 
of capital. His iguorance of this principle pre- 
Yented him from establishing the true theory of 
the influence of machinery in the production of 
riches." 

In contradiction to the opinion of Adam Smith, 
M. Say, in the fourth chapter, speaks of the va- 
lue which is given to commodities by natural 
agents, such as the sun, the air, the pressure of the 
atmosphere &c., which are sometimes substituted 
for the labour of man, and sometimes concur with 
him in producing.* But these natural agents, 
though they add greatly to value in use, never add 
exchangeable value, of which M. Say is speak- 
ing, to a commodity : as sooq as by the aid of ma- 

* ** The first man who knew how to soften metals by fire, is > 
not the creator of the value which that process adds to the 
melted metal. That value is the result of the physical ac- 
tion of fire added to the industry and capital of those who 
availed themselves of this knowledge." 

" From this error Smith has drawn this false result, that the 
value of all productions represents the recent or former labour 
cimaj), or in other words, that riches are nothing else but 
accumulated labour ; from ivhich, by a second consequence, 
equally false, labour is the sole measure of riches, or of the 
value of productions'^* The inferences with which M. Say 
concludes are his own, and not Dr Smith's ; they are correct 
if no distinction be made between value and riches : but 
though Adam vSmith, who defined riches to consist in the 
abundance of necessaries, conveniences, and enjoyments of 
human life, would have allowed that machines and natural 
agent§ might very greatly add to the riches of a country, he 
would not have allowed that they add any thing to value in 
exchange. 

* Chap, iv, p. SI.,- 



chiuery, or bj' the knowledge of natural pbiloso- 
phy, you oblige natural agents to do the work 
which was before done by man, the exchangeable 
value of such work falls accordingly. If ten men 
turned a corn mill, and it be discovered that by 
the assistance of wind, or of water, the labour of 
these ten men may be spared, the flour, which is 
the produce of the w ork performed by the mill, 
would immediately fall in value, in proportion to 
the quantity of labour saved ; and the society would 
be richer by the commodities which the labour 
of the ten men could produce, the funds destined 
for their maintenance being in no degree impaired. 
M. Say accuses Dr. Smith of having overlook- 
ed the value which is given to commodities by na- 
tural agents, and by machinery, because he consi- 
dered that the value of all things was derived from 
the labour of man ; but it does not appear to me, 
that this charge is made out ; for Adam Smith no 
where undervalues the services which these natu- 
ral agents and machinery perform for us, but he 
very justly distinguishes the nature of the value 
which they add to commodities — they are service- 
able to us, by increasing the abundance of produc- 
tions, by making men richer, by adding to value in 
«se: but as they perform their work gratuitously, 
as nothing is paid for the use of air, of heat, and of 
water, the assistance which they afford us, adds 
nothing to value in exchange. In the first chap- 
ter of the second book, M. Say himself gives a 
similar statement of value, for he says that " utility 
is the foundation of value, that commodities arp 
«nlv desirable because they are in some way use- 



295 

fa], but that their value depends not on their utility, 
not on the degree in which they are desired, but 
on the quantity of labour necessary to procure 
them." " The utility of a commodity thus under- 
stood makes it an object of man's desire, makes 
him wisli for it, and establishes a demand for it. 
When to obtain a thing, it is sufficient to desire it, 
it may be considered as an article of natural wealth, 
given to man in an unlimited quantity, and which 
he enjoys, without purchasing it by any sacrifice ; 
such are the air, water, the light of the sun. If 
he obtained in this manner all the objects of his 
wants and desires, he would be infinitely rich : he 
would be in want of nothing. But unfortunately 
this is not the case; the greater part of the things 
which are convenient and agreeable to him, as well 
as those which are indispensably necessary in the 
social state, for which man seems to be specifically 
formed, are not given to him gratuitously ; they 
couid only exist by tlie exertion of certain labour, 
the employment of a certain capital, and, in many 
cases, by the use of land. These are obstacles in 
the way of gratuitous enjoyment; obstacles from 
which result a real expense of production ; because 
we are obliged to pay for the assistance of these 
agents of production. '^ ^'^ It is only when this 
utility has thus been communicated to a thing (viz. 
by industry, capital, and land,) that it is a produc- 
tion, and that it has a value. It is its utility which 
is the foundation of the demand for it, but the sa- 
crifices, and the charges necessary to obtain it, or 
in other words, its pyice, limits the extent of tliis 
demand." 



i^96 

The confusion which arises from confounding 
the terras " vahie" and ^< riches" will best b,e seen 
in the following passages.* His pupil observes : 
** You have said, besides, that the riches of a so- 
ciety were composed of the sum total of the values 
which it possessed ; it appears to me to follow, that 
the fall of one production, of stockings for exam- 
ple, by diminishing the sum total of the value be- 
longing to the society, diminishes the mass of its 
riches ;" to which the following answer is given : 
the sum of the society's riches will not fall on that 
account. Two pair of stockings are produced in- 
stead of one; and two pair at three francs, are 
equally valuable with one pair at six francs. The 
income of the society remains the same, because 
the manufacturer has gained as much on two pair 
at three francs, as lie gained on one pair at six 
francs." Thus far M. Say, though incorrect, is 
at least consistent. If value be the measure of 
riches, the society is equally rich, because the value 
of all its ccaimodities is the same as before. But 
now for his inference. '^ But when the income 
remains the same, and productions fall in price, 
the society is really enriched. If the same fall 
took place in all commodities at the same time, 
which is not absolutely impossible, the society by 
procuring at half their former price, all the objects 
of its consumption, without having lost any por- 
tion of its income, would really be twice as rich 
as before, and could purchase twice the quantity of 
goods." 

* M. Say, Catechisme cfEconomie PoUiique, p. 9P. 



297 

In the first passage we are tbld, that if every 
thing fell to half its \alue, from abundance, the 
society would be equally rich, because there would 
be double the quantity of commodities at half their 
former value, or in other words, there would be 
the same value. But in the last passage we are 
informed, that by doubling the quantity of com^ 
modities, although the value of each commodity 
should be diminished one half, and therefore the 
value of all the commodities together be precisely 
the same as before, yet the society would be twice 
as rich as before. In the first case riches are 
estimated by the amount of value : in the second, 
they are estimated by the abundance of commo= 
dities contributing to human enjoyments. M. Say 
further says, " that a man is infinitely rich without 
valuables, if he can for nothing obtain all the ob- 
jects he desires ; yet in another place we are told^ 
'' that riches consist, not in the product itself, for 
it is not riches if it have not value, but in its value," 
Vol.ii, p.3. 



38 



CHAPTER XIX. 

Effects of Accumulation on Profits and Interest* 

From the account which has been given ojf 
the profits of stock, it will appear, that no accumula- 
tion of capital will permanently lower profits, unless 
there be some permanent cause for the rise of wages. 
If the funds for the maintenance of labour were 
doubled, trebled, or quadrupled, there would not 
long be any difficulty in procuring the requisite 
number of hands, to be employed by those funds ; 
but owing to the increasing difficulty of making 
constant additions to the food of the country, funds 
of the same value would probably not maintain 
the same quantity of labour. If the ne^cessaries 
of the workmen could be constantly increased with 
the same facility, there could be no permanent al- 
teration in the rate of profits or wages, to what- 
ever amount capital might be accumulated. Adam 
Smith, however, uniformly ascribes the fall of 
profits to accumulation of capital, and to the com- 
petition which will result from it, without ever 
adverting to the increasing difficulty of providing 
food for the additional number of labourers which 
the additional capital will employ. " The increase 
of stock," he says, " which raises wages, tends to 



• 300 

lower profit. When the stocks of many, rich 
merchants are turned into the same trade, their 
mutual competition naturally tends to lower its 
profit; and when there is a like increase of stock 
in all the different trades carried on in the same 
Society, the same competition must produce the 
same effect in all." Adam Smith speaks here of 
a rise of wages, but it is of a temporary rise, pro- 
ceeding from increased funds before the popula- 
tion is increased ; and he does appear to see, that 
at the same time that capital is increased, the work 
to be effected by capital, is increased in the same 
proportion. M. Say has however most satisfac- 
torily shewn, that there is no amount of capital 
which may not be employed in a country, because 
demand is only limited by production. No man 
produces, but with a view to consume or sell, and 
he never - sells, but with an intention to purchase 
some other commodity^, which may be immediately 
useful to him, or which may contribute to frfture 
production. By producing, then, he necessarily 
becomes either the consumer of his own goods, or 
the purchaser and consumer of the goods of some 
other person. It is not to be supposed that he 
should, for any length of time, be ill-informed of 
the commodities which he can most advantageously 
produce, to attain the object which he has in view, 
namely, the possession of other goods ; and there- 
fore it is not probable that he will continually pro., 
duce a commodity for which there is no demand.* 

* Adam Smith speaks of Holland, as affording an instance 

of the fall of profits from the accumulation of capital, and 

,from every employment being consequently overcharged v 



301 

There cannot then be accumulated in a country 
any amount of capital which cannot be employed 
productively, until wages rise so high in con- 
sequence of the rise of necessaries, and so little 
consequently remains for the profits of stock, that 
the motive for accumulation ceases.* While the 
profits of stock are high, men will have a motive 
to accumulate. Whilst a man has any wished-for 
gratification unsupplied he will have a demand for 
more commodities ; and it will be an effectual de- 
mand while he has any new value to offer in ex- 
change for them. If ten thousand pounds were 
given to a man having 100,000Z. per annum, he 
would not lock it up in a chest, but would either 
increase his expenses by lOOOOZ. ; employ it him- 
self productively, or lend it to some other person 
for that purpose ; in either case, demand would be 
increased, although it would be for different objects. 
If he increased his expenses, his effectual demand 
might probably be for buildings, furniture, or some 

" The government there borrow at two per cent., and private 
people of good credit, at three per cent." But it should be 
remembered, that Holland was obliged to import almost all the 
corn which she consumed, and by imposing heavy taxes on the 
necessaries of the labourer, she further raised the wages of 
labour. These facts will sufficiently account for th^ low rate 
of profits and interest in Holland. 

* Is the following quite consistent with M. Say's principle? 
" The more disposable capitals are abundant in proportion to 
tlie extent of employment for them, the more will the rate of 
interest on loans of capital fall."— Vol. ii, p. 108. If capital 
to any extent can be employed by a country, how can it be 
said to be abundant compared with the extent of employment 
for it? - ,. ^. 



30g 

such enjoyment. If he employed his lOOOOi. pro- 
ductively, his effectual demand would be for food, 
clothing, and raw material, which might set new 
labourers to work ; but still it would be demand.* 
Productions are always bought by productions, 
money is only the medium by which the exchange 
is effected. Too much of a particular commodity 



* Adam Smith says, that " Wlien the produce of any par- 
ticular branch of industry exceeds ^vhat the demand of the 
country requires, the surplus must be sent abroad, and ex- 
changed for something for which there is a demand at home. 
Without siich exportation a part of the productive labour of 
the country must cease, and the value of its annual produce 
diminish. The land and labour of Great Britain produce ge- 
nerally more corn, woollens, and hardware, than the demand of 
the home market requires. The surplus part of them, there- 
fore, must be sent abroad, and exchanged for something for 
which there is a demand at home. It is only by means of 
such exportation, that this surplus can acquire a value sufficient 
to compensate the labour and <ixpense of producing it." One 
would be led to think by the above passage, that Adam Smith 
concluded we were under some necessity of producing a sur- 
plus of corn, woollen goods, and hardware, and that the capital 
which produced them could not be otherwise employed. It 
is, however, always a matter of choice in what way a capital 
shall be employed, and therefore there can never, for any 
length of time, be a surplus of any commodity ; for if there 
were, it would fall below its natural price, and capital would 
be removed to some more profitable employment. No writoi* 
has more satisfactorily and ably shewn than Dr. Smith, the 
tendency of capital to move from employments in which the 
goods produced do not repay by their price the whole expenses, 
including the ordinary profits, of producing and bringing 
them to market.* 

* See Chap. 10, Book 1. 



303 

may be protlaced, of which there may be such a 
glut ill the market, as not to repay the capital ex- 
pended on it; but this cannot be the case with re- 
spect to all commodities ; the demand for com is 
limited by the mouths which are to eat it, for shoes 
and coats by the persons who are to wear them 5 
but though a community, or a part of a community, 
may have as much corn, and as many hats and shoes, 
as it is able or may wish to consume, the same can- 
not be said of every commodity produced by na- 
ture or by art. Some would consume more wine, 
if they had the ability to procure it. Others hav« 
ing enough of wine, would wish to increase the quan- 
tity or improve the quality of their furniture. Others 
might wish to ornament their grounds, or to enlarge 
their houses. The wish to do all or some of these is 
implanted in every man's breast; nothing is required 
but the means, and nothing can afford the means, but 
an increase of production. If I had food and neces-. 
saries at my disposal, I should not be long in want 
of workmen who would put me in possession of 
some of the objects most useful or most desirable 
to me. 

Whether these increased productions, and the 
consequent demand which they occasion, shall or 
shall not lower profits, depends solely on the rise 
of wages ; and the rise of wages, excepting for a 
limited period, on the facility of producing the food 
and necessaries of the labourer. I say excepting 
for a limited period, because no point is better 
established, than that the supply of labourers will 
always ultimately be in proportion to the mean*? of 
supporting them, t 



ao4i 

There is only one case, and that will be tempo- 
rary, in which the accumulation oif capital with. a 
low price of food may be attended with a fall of 
profits ; and that is, when the funds for the mainte- 
nance of labour increase much more rapidly than 
population ; wages will then be high, and profits 
low. If every man were to forego the use of 
luxuries, and be intent only on accumulation, a 
tjuantity of necessaries might be produced, for 
which there could not be any immediate consump- 
tion. Of commodities so limited in number, there 
might undoubtedly be an universal glut, and con- 
sequently there might neither be demand for an 
additional quantity of such commt)dities, nor pro- 
fits on the employment of more capital. If men 
ceased to consume, they would cease to ])roduce. 
This admission does not impugn the general princi- 
ple. In such a country as England, for example, 
it is difficult to suppose that there can be any dis- 
position to devote the whole capital and labour 
of the country to the production of necessaries 
only. 

When merchants engage their capitals in foreign 
trade, or in the carrying trade, it is always from 
dioice, and never from necessity : it is because in 
that trade their profits will be somewhat greater 
than in the home trade. 

Adam Smith has justly observed " that the desire 
of food is limited in every man by the narrow ca- 
pacity of the human stomach, but the desire of the 
conveniences and ornaments of building, dress, 
equipage, and household furniture, seems to have 
Mo limit or certain boundary." Nature then ha« 



305 

necessarily limited the amount of capital which 
can at any one time be profitably engaged in agri- 
culture, but she has placed no limits to the amount 
of capital that may be employed in procuring " the 
conveniences and ornaments'' of life. To procure 
these gratifications in the greatest abundance is the 
object in view, and it is only because foreign trade, 
or the carrying trade, will accomplish it better, 
that men engage in them, in preference to manufac- 
turing the commodities required, or a substitute for 
them at home. If, however, from peculiar circum- 
stances, we were precluded from engaging capital 
in foreign trade, or in the carrying trade, we should 
though with less advantage, employ it at home ; 
and while there is no limit to the desire of " con- 
veniences, ornaments of building, dress, equipage, 
and household furniture," there can be no limit to 
the capital that may be employed in procuring 
them, except that which bounds our power to 
maintain the workmen who are to produce them. 

Adam Smith, hoAvever, speaks of the carrying 
trade as one not of choice, but of necessity ; as if 
the capital engaged in it would be inert if not so 
employed, as if the capital in the home trade 
could overflow, if not confined to a limited amount. 
He says, " when the capital stock of any country 
is increased to such a degree, that it cannot be all 
employed in supplyins; the consumption, and sup- 
poHing the productive labour of that particular 
country, the surplus part of it naturally disgorges 
itself into the carrying trade, and is employed in 
performing the same offices to other countries." 
39 



306 

^^Abeut ninety-six tliousand liogsheads of to- 
bacco are annually purchased with a part of the 
surpluss produce of British industry. But the de- 
mand of Great Britain does not require, perhaps, 
more than fourteen thousand. If tlie remaining 
eighty-two thousand, therefore, could not be sent 
abroad and exchanged for sometking more in de- 
mand atliome, tlie importation of theip would cease 
immediately, and with it the productive labour of 
all the inhabitants of Great Britain^ icho are at 
present employed in j^repanVg" #/ie goodsi with 
which these eighty-two thousand hogsheads are anf> 
nually purchased." But could not this portion of 
the productive labour of Great Britain I)e employ- 
ed in preparing some other sort of goods, Avith 
which something more in demand at home might 
be purchased ? x\nd if it could not, might we not 
employ this productive labour, thougli v.'ith less 
advantage, in making those goods in demand at 
home, or at least some substitute for them? If we 
wanted velvets, might we not attempt to make vel- 
vets ; and if we could not succeed, might we not 
make more cloth, or some other object desirahle 
to us ? 

We manufacture commodities, and with them, 
buy goods a!)road, because v.e cau obtain a great- 
er quantity tlian we could make at Itome. De- 
prive us of this trade, and we immediately manu- 
facture again for ourselves. But this opinion of 
Adam Smith is at variance with all his general 
doctrines on this subject. ^'If a foreign country 
can supply us with a commodity cheaj)er than we 
ourselves can make it, better buy it of them with 



307 

some part of the produce of our ov/n industry, em- 
ployed in a way in which we have some advantage. 
The s^eiieral wdiistrij of tlie country heins, always 
in proportion to tlie capital ichich employs it, will 
not thereby he diminished, but only left to find out 
the way in which it can be employed with the great- 
est advantage." 

Again. " Those, therefore, who have the com- 
mand of more food than they themselves can con- 
sume, are always willing to exchange the surplus, 
or, what is the same thing, the price of it, for gra- 
H;ifications of another kind. What is over and 
above satisfying the limited desire, is given for the 
amusement of those desires which cannot be satis- 
fied, but seem to be altogether endless. The poor, 
in order to obtain food, exert themselves to gratify 
•those fancies of the rich ; and to obtain it more cer- 
tainly, they vie with one another in the cheapness 
and perfection of their Avork. The number of 
workmen increases with the increasing quantity of 
food, or with the growing improvement and culti- 
vation of the lands ; and as the nature of their bu- 
siness admits of the utmost subdivisions of labours, 
the quantity of materials which they can work up 
increases in a much greater proportion than their 
numbers. Hence arises a demand for every sort 
of material which haman invention can employ, 
either usefully or ornamentally, in building, dress, 
equipage, or household furniture ; for the fossils 
and mineTaJs contained in the bowels of the earth, 
the precious metals, and the precious stones." 

Adam Smith has justly observed, that it is ex- 
tremely difficult to determine the rate of the pro- 



308 • 

fits of stock. <• Profit is so flnctuating, that even 
in a particular trade, and much more in trades iu 
genejral, it would be difficult to state the average 
rate of it. To judge of what it may have been 
formerly, or in remote periods of time, with any 
degree of precision, must be altogether impossi- 
ble." Yet since it is evident that much will be 
given for the use of money, when much can be 
made by it, he suggests, that " the market rate of 
interest will lead us to form some notion of the rate 
of profits, and the history of the progress of inte- 
rest ajffbrd us that of the progress of profits." Un- 
doubtedly if the market rate of interest could be 
accurately known for any considerable period, we 
should have a tolerably correct criterion, by which 
to estimate the progress of profits. 

But in all countries, from mistaken notions of 
policy, the state has interfered to prevent a fair 
and free market rate of interest, by. imposing heavy 
and ruinous penalties on all those who shall take 
more than the rate fixed l)y law. In all countries 
probably these laws are evaded, but records give 
us little information on this head, and point out 
rather the legal and fixed rate, than the market rate 
of interest. During the present war, exchequer 
and navy bills have frequently been at so high a 
discount, as to afford the purchasers of them 7? 8 
per cent., or a greater rate of interest for their mo- 
ney. Loa!ns have been raised l)y government at 
an interest exceeding 6 per cent., and individuals 
have b';en frequently obliged, by indirect means, 
to pay more than 10 per cent., for the interest of 
money; yet during this same period the legal rate 



309 

of interest has been uniformly at 5 per cent. Lit- 
tle dependence for information then can be placed 
on that which is the fixed and legal rate of inte- 
rest, when we find it may diflPer so considerably 
from the market rate. Adam Smith informs us, 
that from the 37th of Henry YIII., to 21st of 
James I., 10 per cent, continued to be the legal 
rate of interest. Soon after the restoration, it was 
reduced to 6 per cent., and by the 12th of Anne, to 
5* per cent. He thinks the legal rate followed, 
and did not precede the market rate of interest. 
Before the American War, government borrowed 
at 3 per cent., and the people of credit in the capi- 
tal, and in many other parts of the kingdom at 3|, 
4, and 4| per cent. 

The rate of interest, though ultimately and per- 
manently governed l)y the rate of profit, is however 
subject to temporary variations from other causes. 
With every fluctuation in the quantity and value 
of money, the prices of commodities naturally 
vary. Tliey vary also, as we have already shewn, 
from the alteration in the proportion of supply to 
demand, although there should not be either great- 
er facility or difficulty of production. When the 
market prices of goods fall from an abundant sup- 
ply, from a diminished demand, or from a rise in 
the value of money, a manufacturer naturally ac- 
cumulates an unusual quantity of finished goods, 
being unwilling to sell them at very depressed 
prices. To meet his ordinary payments, for which 
he used to depend on the sale of his goods, he now 
endeavors to borrow on credit, and is often oI)ligcd 
to give an increased rate of interest. This how- 



310 

ever is but of temporary duration ; for either tlie 
manufacturer's expectations were well grounded, 
and the market price of his commodities rises, or 
he discovers that there is a permanently diminish- 
ed demand, and he no longer resists the course of 
affairs : prices fall, and money and interest regain 
their real value. If by the discovery of a new 
miae, by the abuses of banking, or by any other 
cause, the quantity of money be greatly increas- 
ed, its ultimate effect is to raise the prices of 
commodities in proportion to the increased quan- 
tity of money ; but there is probably always an 
interval, during which some effect is produced on 
the- rate of interest. 

The price of funded property is not a steady 
criterion by which to judge of the rate of inter- 
est. In time of war, the stock market is so 
loaded by the continual loans of government, 
that the price of stock has not time to settle at its 
fair level before a new operation of funding takes 
place, or it is affected by anticipation of political 
events. In time of peace, on the contrary, the op- 
erations of the sinking fund, the unwillingness, 
which a particular class of persons feel to divert 
their funds to any other employment than that to 
which they have been accustomed, Which they 
think secure, and in which their dividends are paid 
with the utmost regularity, elevates the price of 
stock, and consequently depresses tlie rate of in- 
terest on these securities below the general market 
rate. It is observable too, that for different secu- 
rities, government pays very different rates of in- 
terest. Whilst 100/. capital in 5 per cent, stock is 



311 

selling for 95/., an exchequer bill of 100/., will be 
sometimes selling for 100/. 5s., for which exche- 
quer bill, no more interest will be annually paid than 
4/. 1 Is. Sd. : one of these securities pays to a purchaser 
at the above prices, an interest of more than 5| per 
cent., the other but little more than 41; a certain 
quantity of these excliequer bills is required as a 
safe and marketable investment for bankers; if 
they were increased much beyond this demand, 
they would probably be as much depreciated as 
the 5 per cent, stock. A stoek paying 3 per cent, 
per annum will always sell at a proportionally 
greater price than stock paying 5 per cent., for the 
capital debt of neither can be discharged but at 
par, or 100/. money for 100/. stock. The market 
rate of interest inay fall to 4 per cent., and govern- 
ment would then pay the holder of 5 per cent, 
stock at par, unless he consented to take 4 per 
cent., or some diminished rate of interest under 5 
per cent. : they would have no advantage from so 
paying the holder of 3 per cent, stock, till the mar- 
ket rate of interest had fallen below 3 per cent, 
per annum. To pay the interest on the national 
debt, large sums of money are withdrawn from 
circulation four times in the year for a few days. 
These demands for money being only temporary, 
seldom affect prices ; they are generally surmount- 
ed by the payment of a large rate of interest.* 

* "All kinds of public loans," observes M. Say, " are at- 
tended with the inconvenience of withdrawing capital, or por- 
tions of capital, from productive employments, to devotethem 
tp consumption ; and when they take place in a country, th-e, 
government of which does not inspire much confidence. 



312 

iliey have the further inconvenience of raising the interest of 
capital. Who would lend at 5 per cent, per annum to agri- 
culture, to manufactures, and to commerce, when a borrower 
• may be found ready to pay an interest of 7 or 8 per cent.? 
That sort of income, which is called profit of stock, would 
. rise then at the expense of the consumer. Consumption 
would be reduced by the rise in tlie price of produce ; and the 
other productive services would be less in demand, less well 
paid. The whole nation, capitalists excepted, would be the 
SiUffepers from such a state of things." To the question : " who 
:would lend money to farmers, manufacturers, and merchants, 
' at 5 per cent, per annum, when another borrower having lit- 
tle credit, would give 7 or 8 ?" I reply, that every prudent 
and reasonable man would. Because the rate of interest is 7 
or 8 percent, there where the lender runs extraordinary risk, 
is this any reason that it should be equally high in those places 
• where they are secured from such risks ? M. Say allows, that 
ihe rate of interest depends on the rate of profits ; but it does 
not therefore follow, that the rate of profits depends on the 
rate of interest. One is the cause, the other the eflect, and 
it is impossible far. anj, circumstances to make them change 
place?. -■::'■' -'. '' ''"■ ' 



CHAPTEa XX. 

Bounties on exportation, and prohibitions of import 
tation, 

A BOUNTY on the exportation of corn tends 
to lower its price to the foreign consumer, but it 
has no permanent effect on its price in the home 
market. 

Suppose that to afford the usual and general 
profits of stock, the price of corn should in Eng- 
land be il, per quarter ; it could not then be \ 
exported to foreign countries where it sold for 3/. 
15^. per quarter. But if a bounty of 10^. per 
quarter were given on exportation, it could be 
sold in the foreign market at 3/; 10*., and conse- 
quently the same profit would be afforded to the 
corn grower, whether he sold it at 3/. 10^. in the 
foreign, or at il. in the home market. 

A bounty then, which should lower the price 
of British corn in the foreign country, below the 
cost of producing corn in that country, would 
naturally extend the demand for British, and di- 
minish the demand for their own corn This 
extension of demand for British corn could not 
fail to raise its price for a time in the home market, 
and during that time to prevent also its falling, so 
low in the foreign market as the bounty has a 
tendency to effect. But the causps which would 



- 314 

thus operate on the market price of corn in Eng- 
land would produce no effect whatever on its 
natural price, on its real cost of production. To 
grow. corn would neither require more labour nor 
more capital, and, consequently, if the profits of 
the farmer's stock were before only equal to the 
profits of the stock of other traders, they will^ 
after the rise of price, be considerably above them. 
By raising the profits of the farmer's stock, the 
bounty will operate as an encouragement to agri- 
culture, and capital will be withdrawn from manu- 
factures to be employed on the land, till the 
enlarged demand for the foreign market has been 
• ;5iipplied, when the price of corn will again fall 
in the home market to its natural and necessary 
price, and profits will be again at their ordinary 
and accustomed level The increased supply of 
grain operating on the foreign market, will also 
lower its price in the country, to which it is ex- 
ported, and will thereby restrict the profits of the 
exporter to the lowest rate at which he can afford 
to trade. 

The ultimate effect then of a bounty on the 
exportation of corn, is not to raise or to lower the 
price in the home market, but to lower the price 
of corn to the foreign consumer — to the whole 
extent of the bounty, if the price of corn had not 
before been lower in the foreign, than in the home 
market — and in a less degree, if the price in the 
home had been above the price in the foreign 
market. "" - •, 



315 

A writer in the fifth vol. of the Edinburgh Re? 
view on the subject of a bounty on the exportation 
of corn/ has very clearly pointed out its effects on- 
the foreign and home demand. He has also justly 
remarked, that it would not fail to give encour- 
agement to agriculture in the exporting country ; 
but he appears to have imbibed the common error 
which has misled Dr. Smith, and I believe most , 
other writers on this subject. He supposes, be- 
cause the price of corn ultimately regulates wages, 
that therefore it will regulate the price of all 
other commodities. He says that the bounty, " by 
raising the profits of farming, will operate as an 
encouragement to husbandry; by raising the price 
of corn to the consumers at home, it will dimmish 
^for the timie their power of purchasing this neces- 
sary of hfe, and thus abridge their real wealth. 
It is evident, however, that this last effect must he 
temporary : the wages of the labouring consumers 
had been adjusted before by competition, and the 
saoie principle will adjust them again to the same 
j-ate, by raising the money price of labour, arid^ 
through that, of other commodities^) to the money price 
of corn. The bounty upon exportation, therefore, 
will ultimately raise the money price of corn in 
the home market j not directly, however, but 
throusch the medium of an extended demand in the 
foreign market, and a consequent enhancement of 
the real price at home ; and this rise of the money 
price, ivhen it has once been communicated to other 
commodities, will of course become fixed.'''' 



316 

If, however, I have succeeded in showing that 
it is not the rise in the money wages of labour 
which raises the price of commodities, but that 
such rise always affects profits, it will follow that 
the prices of commodities would not rise, in conse- 
quence of a bounty. 

But a temporary rise in the price of corn, pro- 

. duced by an increased demand from abroad,-would 
Jiave no effect on the money price of wages. The 
rise of corn is occasioned by a competition for that 
supply which was before exclusively appropriated 
to the home market. By raising profits, additional 
capital is employed in agriculture, and the increas- 
ed supply is obtained; but till it be obtained, the 
high price is absolutely necessary to proportion 
the consumption to the supply, which would be 

. counteracted by a rise of wages. The rise of corn 
is the, consequence of its scarcity, and is the means 
by which the demand of the home purchasers h 
diminished. If wages were increased, the compe- 
tition would increase, and a further rise of the 
price of corn would become necessary. In this ac- 
count of the 'effects of a bounty, nothing has been 
supposed to occur to raise the natural price of 
corn, by which its market price is ultimately go- 
verned ; for it has not been supposed that any ad- 
ditional labour would be lequired on the land to 
- insure a given production, and this alone can raise 
natural price. If the natural price of cloth were 
20^. per yard, a great increase in the foreign de- 
mand might raise the price to 255. or mpre,b,ut the 



317 

profits which \t9uld then be made by the clothier 
would not fail to attract capital in that direction ; 
and, although the demand should be doubled, tre- 
bled, or quadrupled ^ the supply would ultiaiateiy* 
be obtained, and cloth would fall to its natural 
price of 20s, So in the supply of corn, although 
W€ should export 2, 3, or 800,000 quarters, an- 
nually, it would ultimately be produced at its na- 
tural price, which never varies unless a different 
quantity of labour becomes necessary to produc- 
tion* 

Perhaps in no part of Adam Smith's justly cele-. 
brated work are his conclusions more liable to ob- 
jection, than in the chapter on bounties. In the 
first place, he speaks of corn as of a commodity of 
which the production cannot be increased in con- 
sequence of a bounty on exportation; he supposes 
invariably that it acts only on the quantity actually 
produced, and is no stimulus to further production. 
" In years of plenty," he says, " by occasioning an 
extraordinary exportation, it necessarily keeps up 
the price of corn in the home market above what 
itw'ould naturally fall to. In years of scarcity, 
though the bounty is frequently suspended, yet 
the great exportation which it occasions in years 
of plenty, must frequently hinder, more or less, 
the plenty of one year from relieving the scarcity 
of another. Both in the years of plenty and in 
years of scarcity, therefore, the bounty neces- 
sarily tends to raise the money price of corn some- 



318 

what higher -than it otherwise M'ould be in the 
home market."* 

Adam Smith appears to have been fullj aware, 
that the correctness of his argument entirely de- 
pended on the fact, whether the increase " of the 
money price of corn, by rendering that commodity 
more profitable to the farmer, would not necessa- 
rily encourage its production." 

* In another place he says, that " whatever extension ot" 
the foreign market can be occasioDed by the bounty, must, in 
every particular year, be altogether at the expense of the 
home market ; as every bushel of corn which is exported by 
means of (he bounty, and which would not have been export- 
ed without the bounty, would have remained in the home 
market to increase the consumption, and to lov/er the price 
of that commodity. The corn bounty, it is to be observed, 
as well as every other bounty upon exportation, imposes two 
different taxes upon the people ; first, the tax which they are 
obliged to contribute, in order to pay the bounty; and, se- 
condly, the tax which arises from the advanced price of the 
commodity in the home market, and which, as the whole 
body of the people are purchasers of corn, must in this par- 
ticular commodity be paid by the whole body of the people. 
*In this particular commodity, therefore, tliis tax is by much 
the heaviest of the two." ^ "For every five shillings, there- 
fore, wiiich they contribute to the payment of the first tax, 
they must contribute six pounds four shillings to the payment 
of the second." " The extraordinary exportation of corn, 
therefore, occasioned by the bounty, not only in every par- 
ticular year diminishes the home, jtist as much as it extends 
the foreign market and consumption, but, by restraining the 
population and industry of the country, its final tendency is 
to. stout and restrain the gradual extension of the home mar- 
ket, and thereby, in the long run, leather to diminish than to 
aiigment the whole marKet and ccKsumptioa of CQra>" *" 



319 

" I answer," he says, " that this might be the 
case if the effect of the bounty was to raise the 
real price' of cornj or^to enable the farmer, with 
an equal quantity of it, to maintain a greater num- 
ber of labourers in the same manner, whether 
liberal, moderate, or scanty, as other labourers 
are commonly maintained in his neighbourhood." 

If nothing were consumed by the labourer but 
corn, and if the portion which he received was 
the very lowest which his sustenance required, 
there might be some ground for supposing that 
the quantity paid to the labourer could, under no 
circumstances, be reduced; but the money wages 
of labour sometimes do not rise at all, and never 
rise in proportion to the rise in the money price 
of corn, because corn, though an important part, 
is only a part of the consumption of the labourer. 
If half his wages were expended on corn, and 
the other half on soap, candles, fuel, tea, sugar, 
clothing, &c. commodities on which no rise is sup- 
posed to take place, it is evident that he would be 
quite as well paid with a bushel and a half of 
wheat, wheri it~was,165. a bushel, as he was with 
two bushels when the --price was Ss. per bushel ; 
or with 245. in money as he was before with 16^. 
His wages would rise only 50 per cent, though 
corn rose 100 per cent, and, consequently, there 
would be sufficient motive to divert more capital 
to the land, if profits on other trades continued 
the same as before 13ut such a rise of wages 
would also induce manufacturers to withdraw 



326 

■ their capitals from manufactures to employ them 
on the land ; for whilst the farmer increased the 
price of his commodity 100 per cent., and his wa- 
ges only 50 per cent., the manufacturer would be 
obliged also t8 raise wages 50 per cent., whilst he 
had no compensation whatever, in the rise of his 
manufactured commodity, for this increased charge 
of production; capital would consequently flow 
from manufactures to agriculture, till the supply 
•would again lower the price of corn to Ss. per 
bushel, and wages to IGs. per week; when the 
manufacturer would obtain the same profits as the 
farmer, and the tide of capital would cease to set 
ip' either direction. This is, in fact, the mode in 
which the cultivation of corn is always extended, 
and the increased wants of the market supplied. 
The funds for the maintenance of labour increase, 
and wao-es are raised. The comfortable situation 
of»the labourer induces him to marry — population 
increases, and the demand for corn raises its price 
relatively to other things, — more capital is profit- 
ably employed on agriculture, and conlinues to 
flow towards it, till the supply is equal to the de- 
mand, when the price again falls, and agricultural 
and manufacturing profits are again brought to a 
level. 

But whether wages were stationary after the 
rise in the price of corn, or advanced moderately, 
or enormously, is of no importance to this ques- 
tion, for wages are paid by the manufacturer as 
well as by the farmer, ami, therefore, in this re- 



3^21 

spect they must be equally affected by a rise in 
the price of corn. But they are unequally affected 
in their profits, inasmuch as the farmer selk his 
commodity at an advanced price, while the manu- 
facturer sells his for the same price as before. 
It is however the inequality of profit, which is al- 
ways the inducement to remove capital from one 
employment to another, and therefore more corn 
would be produced, and fewer commodities ma- 
nufactured. Manufactures would not rise, because 
fewer were manufactured, for a supply of them 
would be obtained in exchange for the exported 
corn. 

A bounty, if it raises the price of corn, either 
raises it in comparison with the price of other 
commodities, or it does not. If the affirmative be 
true, it is impossible to deny the greater profits of 
the farmer, and the temptation to the removal of 
capital, till its price is again lowered by an abun- 
dant supply. If it does not raise it in comparison 
with other commodities, where is the injury to the 
home consumer, beyond the inconvenience of pay- 
ing the tax ? If the manufacturer pays a greater 
price for his corn, he is compensated by the greater 
price at which he sells his commodity, with which 
his corn is ultimately purchased. 

The erTor of Adam Smith proceeds precisely 

from the same source as that of the writer in the 

Edinburgh Review ; for " they both think " that 

the money price of corn regulates that of all other 

4] 



%' 



322 

home-made commodities."* " It regulates," says 
Adam Smith, " the money price of labour, which 
must always be such as to enable the labourer to 
purchase a quantity of corn sufficient to maintain 
him and his family, either in the liberal, moderate, 
or scanty manner, in which the advancing, station- 
ary, or declining circumstances of the society 
oblige his employers to maintain him. By regu- 
lating the money price of all the other parts of 
the rude produce of land, it regulates that of 
the materials of almost all manufactures. By re- 
gulating the money price of labour, it regulates 
that of manufacturing art, and industry ; and by 
regulating both, it regulates that of the complete 
manufacture. The money price of labour^ and of 
every thing that is the produce either of land and la- 
how, mmt necessarily rise or fall in proportion to the 
money price of corny 

This opinion of Adam Smith, 1 have before 
attempted to refute. In considering a rise in the 
price of commodities as a necessary consequence 
of a rise in the price of corn, he reasons as though 
there were no other fund from which the increased 
charge could be paid. He has wholly neglected 
the consideration of profits, the diminution of which 
forms that fund, without raising the price of com- 
modities. If this opinion of Dr. Smith were well 
founded, profits could never really fall, whatever 
accumulation of capital there might be. If when 

* The, eame opinion is held by M. Say. Vol. ii. p. 335. 



323 

wages rose, the farmer could raise tiie price of 
his corn, the clothier, the hatter, and the shoe- 
maker, and every other manufacturer, could also 
raise the price of their goods in proportion to the 
advance, although estimated in money, they might 
be all raised, they would continue to bear the 
same value relatively to each other. Each of 
these trades could command the same quantity as, 
before of the goods of the others, which, since it 
is goods, and not money, which constitute wealth, 
is the only circumstance that could be of impor- 
tance to them; and the whole rise in the price of 
raw produce and of goods, would be injurious to 
no other persons but to those whose property con- 
sisted of gold and silver, or whose annual income 
was paid in a contributed quantity of those metals, 
whether in the form of bullion or of money. Sup.- 
pose the use of money to be wholly laid" aside, 
and all trade to be carried on by barter: under 
such circumstances, could corn rise in exchange- 
able value with other things.'^ If it could, then it 
is not true that the value of corn reo;ulates the 
value of all other commodities; for to do that, It 
should not vary in relative value to them. If it 
could not, then it must be maintained, that whether 
corn be obtained on rich,, or on poor land, with 
much labour, or with little, with the aid of ma- 
chinery, or without, it would always exchange 
for an equal quantity of all other commodities. 

I cannot, however, but remark that, though 
Adam Smith's general doctrines correspond with 



324 

this which I have just quoted, yet in one part of 
his work he appears to have given a correct ac- 
count of the nature of value. " The proportion 
between the value of gold and silver, and that of 
goods of any other kind, depends in all cases,'''' he 
says, '■'' upon the proportion between the quantity of 
labour which is necessary in order to brin^ a certain 
quaniily of gold and silver to r,%arJcet, and that ivhich 
is necessary to bring thither a certain quantity of any 
other sort of goods.''"' Does he not here fully 
acknowledge that if any increase takes place in 
the quantity of labour, required to bring one sort 
of goods to market, whilst no such increase takes 
place in bringing another sort thither, those goo(;ls 
will rise in relative value. If no more labour be 
required to bring cloth and gold to market, they 
will not vary in relative value, but if more labour 
be required to bring corn and shoes to market, 
will not corn and shoes rise in value relatively to 
cloth, and money made of gold ? 

Adam Smith again considers that the effect of 
the bounty is to cause a partial degradation in the 
value of money. " That degradation," says he 
" in the value of silver, which is the effect of the 
fertility of the mines, and which operates equally, 
or very nearly equally, through the greater part 
of the commercial world, is a matter of very litile 
consequence to any particular country. The con- 
sequent rise of all money prices, though it does 
not make those who receive them really richer, 
does not make them really poorer. A service of 



325 

plate becomes reall j cheaper, and every thing else 
remains precisely of the same real value as before." 
This observation is most correct. 

*' But that degradation in the value of silver, 
•which being the effect either of the peculiar situa- 
tion, or of the political institutions of a particular 
country, takes place only in that country, is a mat- 
ter of very great consequence, which, far from 
tending to make any body really richer, tends to 
make every body really poorer. The rise in the 
money price of all commodities, which is in this 
case peculiar to that country, tends to discourage 
more off less every sort of industry which is carried 
on within it, and to enable foreign nations, by fur- 
nishing almost all sorts of goods for a smaller 
quantity of silver than its own workmen can af- 
ford to do, to undersell them, not only in the fo- 
reign, but even in the home market." 

I have elsewhere attempted to show that a par- 
tial degradation in the value of money, which shall 
affect both agricultural produce and manufactured 
commodities, cannot possibly be permanent. To 
say that money is partially degraded, in this sense, 
is to say that all commodities are at a high price; 
but while gold and silver are at liberty to make 
purchases in the cheapest market, they will be ex- 
ported for the cheaper goods of other countries, 
and the reduction of their quantity will increase 
their value at home; commodities will regain their 
usual level, and those fitted for foreign markets 
will be exported, as before. 



326 

A bounty therefore cannot, I think, be objected 
to on this ground. 

If, then, a bounty raises the price of corn in 
comparison with all other things, the farmer will 
be benefited, and more land will be cultivated; 
but if the bounty do not raise the value of corn re- 
latively to other things, then no other inconve- 
nience will attend it, than that of paying the boun- 
ty; one which I neither wish to conceal nor un- 
derrate. 

Dr. Smith states, that " by establishing high 
duties on the importation, and bounties on the ex- 
portation of corn, the country gentlemen seemed to 
have imitated the conduct of the manufacturers." 
By the same means both had endeavoured to raise 
the value of their commodities. " They did not 
perhaps attend to the great and essential differ- 
ence which nature has established between corn, 
and almost every other sort of goods. When by 
either of the abore means, you enable our manu- 
facturers to sell their goods for somewhat a better 
price than they othei'wise could get for them, you 
raise not only the nominal, but the real price of 
those goods. You increase not only the nominal, 
but the real profit, the real v^ealth and revenue of 
those manufacturers — you really encourage those 
manufactures. But when, by the like institutions, 
you raise the nominal or money price of corn, you 
do not raise its real value, you do not increase the 
real wealth of our farmers or country gentlemen, 
you do not encourage the growth of corn. The 



327 

nature of things has stamped upon corn a real 
value, which cannot be altered by merely altering 
its money price. Through the world in general, 
that value is equal to the quantity of labour which 
it can maintain." 

I have already attempted to show, that the mar* 
ket price of corn, would, under an increased de- 
mand from the effects of a bounty, exceed its na- 
tural price, till the requisite additional supply was 
obtained, and that then it would again fall to its 
natural price. But the natural price of corn is not 
so fixed as the natural price of commodities ; be- 
cause, with any great additional demand for corn, 
land of a worse quality must be taken into cultiva- 
tion, on which more labour will be required to 
produce a given quantity, and the natural price of 
corn would be raised. By a continued bounty, 
therefore, on the exportation of corn, there wovild 
be created a tendency to a permanent rise in the 
price of corn, and this, as I have shown else- 
where,* never fails to raise rent. Country gen- 
tlemen then have not only a temporary but a 
permanent interest in prohibitions of the impor- 
tation of corn, and in bounties on its exportation; 
but manufacturers have no permanent interest in a 
bounty on the exportation of commodities, their in- 
terest is wholly temporary. 

A bounty on the exportation of manufacture^ 
■will undoubtedly, as Dr. Smith contends, raise the 
market price of manufactures, but it will not raise 

* See chap, on Rent; 



328 

tlieir natural price. The labour of 290 men will 
produce double the quantity of these goods that 
100 could produce before; and consequently, 
when the requisite quantity of capital was employ- 
ed in supplying the requisite quantity of manufac- 
tures, they would again fall to their natural price. 
It is then only during the interval after the rise in 
the market price of commodities, and before the 
additional supply is obtained, that the manufactu- 
rers will enjoy high profits ; for as soon as prices 
had subsided, their profits would sink to the gene- 
ral level. 

Instead of agreeing, therefore, with Adam Smith, 
that the country gentlemen had not so great an 
interest in prohibiting the importation of corn, as 
the manufacturer had in prohibiting the importa- 
tion of manufactured goods, I contend that they 
have a much superior interest; for their advan- 
tage is permanent, while that of the manufacturer 
is only temporary. Dr. Smith observes, that na- 
ture has established a great and essential difference 
between corn and other goods, but the proper in- 
ference from that circumstance is directly the re- 
verse of that which he draws from it ; for it is on 
account of this difference that rent is created, and 
that country gentlemen have an interest in the 
rise of the natural price of corn. Instead of com- 
paring the interest of the manufacturer with tho 
interest of the country gentleman, Dr. Smith should 
have compared it with the interest of the farmer, 
which is very distinct from that of his landlord. 
Manufacturers have no interest in the rise of the 



329 

natural price of their commodities, nor have farm- 
ers any interest in the rise of the natural price of 
corn, or other raw produce, though both these 
classes are benefited while the market price of 
their productions exceeds their natural price. On 
the contrary, landlords have a most decided inte- 
rest in the rise of the natural price of corn ; for 
the rise of rent is the inevitable consequence of 
the difficulty of producing raw produce, without 
which its natural price could not rise. Now as 
bounties on exportation and prohibitions of the 
importation of corn increase the demand, and 
drive us to the cultivation of poorer lands, they 
necessarily occasion aij increased difficulty of pro- 
duction. 

The sole effect of the bounty, either on the ex- 
portation of manufactures, or of corn, is to divert 
a portion of capital to an employment which it 
would not naturally seek. It causes a pernicious 
distribution of the general funds of the society — 
it bribes a manufacturer to commence or continue 
in a comparatively less profitable employment. 
It is the worst species of taxation, for it does not 
give to the foreign country all that it takes away 
from the home country, the balance of loss being 
made up by the less advantageous distribution of 
the general capital. Thus, if the price of corn 
is in England 4/-, and in France 3/. 15.?. a bounty 
of \0s. will ultimately reduce it to 3/. 10^. in 
France, and maintain at the same price of il. in 
42 



330 

England. For everj quarter exported, England 
pays a tax of lO^. For every quarter imported 
into France, France gains only 55., so that the va- 
lue of 5*. per quarter is absolutely lost to the 
world, by such a distribution of its funds as to 
cause diminished production, probably not of corn, 
but of some other object of necessity or enjoy- 
ment. 

Mr. Buchanan appears to have seen the fallacy 
of Dr. Smith's arguments respecting bounties, and 
on the last passage which I have quoted, very ju- 
diciously remarks : " In asserting that nature has 
stamped a real value on corn, which cannot be al- 
tered by merely altering^ its money price, Dr. 
Smith confounds its value in use with its value in 
exchange. A bushel of wheat will not feed more 
people during scarcity than during plenty ; but a 
bushel of wheat will exchange for a greater quan- 
tity of luxuries and conveniences when it is scarce 
than when it is abundant ; and the landed propri- 
etors, who have a surplus of food to dispose of, 
will therefore, in times of scarcity, be richer men ; 
they will exchange their surplus for a greater va- 
lue of other enjoyments, than when corn is in 
greater plenty. It is vain to argue, therefore, that 
if the bounty occasions a forced exportation 6l 
corn, it will not also occasion a real rise of price." 
The whole of Mr. Buchanan's arguments on this 
part of the subject of bounties, appear to me to 
be perfectly clear ^nd satisfactory. 



331 

Mr. Buchanan however has not, I think, any 
more than Dr. Smith, or the writer in the Edin- 
burgh Review, correct opinions as to the influence 
of a rise in the price of labour on manufactured 
commodities. From his pecuhar views, which I 
have elsewhere noticed, he thinks that the price 
of labour has no connexion with the price of corn, 
and therefore that the real value of corn might 
and would rise without affecting the price of la- 
bour; but if labour were affected, he would main- 
tain with Adam Smith and the writer in the Edin- 
burgh Review, that the price of manufactured com^ 
modities would also rise ; and then I do not see 
how he would distinguish such a rise of corn, 
from a fall in the value of money,- or how he could 
come to any other conclusion than that of Dr. Smith, 
in a note to page 276, vol. i. of the Wealth of 
Nations, Mr. Buchanan observes, " but the price 
of corn does not regulate the money price of all 
the other parts of the rude produce of land. It 
regulates the price neither of metals, nor of va^ 
rious other useful substances, such as coals, wood, 
stones, &c. ; and as it does not regulate the price of 
labour, it does not regulate the price of manufactures ; 
so that the bounty, in so far as it raises the price 
of corn, is undoubtedly a real benefit to the farmer. 
It is not on this ground, therefore, that its policy 
must be argued. Its encouragement to agriculi- 
ture, by raising the price of corn, must be admitted ; 
and the question then comes to be, whether agri- 
eultqre ought thus to be encouraged ?" It is then, 



, 332 

according to Mr. Buchanan, a real benefit to the 
farmer, because it does not raise the price of la- 
bour; but if it did, it would raise the price of all 
things in proportion, and then it would afford no 
particular encouragement to agriculture. 

It must, however, be conceded, that the ten- 
dency of a bounty on the exportation of any com- 
modity is to lower, in a small degree, the value of 
money. Whatever facilitates exportation, tends 
to accumulate money in a country ; and on the 
contrary, whatever impedes exportation, tends to 
diminish it. The general effect of taxation, by 
raising the prices of the commodities taxed, tends 
to diminish exportation, and therefore to check 
the influx of money ; and on the same principle, a 
bounty encourages the influx of money. This is 
more fully explained in the general observations 
on taxation. 

< The injurious effects of the mercantile system 
have been fully exposed by Dr. Smith ; the whole 
aim of that system was to raise the price of com- 
modities, in the home market, bj prohibiting fo- 
reign competition ; but this system was no more 
injurious to the agricultural classes than to any 
other part of the community. By forcing capital 
into channels where it would not otherwise flow, 
it diminished the whole amount of commodities 
produced. The price, though permanently higher, 
was not sustained by scarcity, but by difliculty of 
production; and therefore, though the sellers of 
such commodities sold them for a higher price, 



3^ 

they did not sell them, after the requisite quantity 
of capital was employed in producing thein, at 
higher profits.* 

^ The manufacturers themselves, as consumers, 
had to pay an additional price for such commodi- 
ties, and therefore it cannot be correctly said, that 
" the enhancement of price occasioned by both, 
(corporation laws and high duties on the importa- 
tion of foreign commodities,) is every where finally 
paid by the landlords, farmers, and labourers of 
the country." 

It is the more necessary to make this remark, 
as in the present day the authority of Adam Smith 

* M. Say supposes the advantage of the manufacturers at 
home to be more than teinporary. " A government which | 
absolutely prohibits the importation of certain foreign goods, I 
establishes a mono\}o\j in favour of those who produce such 
commodities at home, against those who consume them ; in 
other words, those at home who produce them, having the 
exclusive privilege of selling them, may elevate their price 
above the natural price ; and the consumers at home, not 
being able to obtain them elsewhere, are obliged to purchase 
them at a higher price." Vol. i. p. 201. | 

But how can they permanently support the market price I 
of their goods above the natural price, when every one of | 
their fellow citizens is free to enter into the trade ? they are 
guaranteed against foreign, but not against home competi- 
tion. The real evil arising to the country from such mono- 
polies, if they can be called by that name, lies, not in raising | 
the market price of such goods, but in raising their real and \ 
natural price. By increasing the Cost of production, a por- 
tion of the labour, of the country is less productively em- 
ployed. 



334 

is quoted by country gentlemen for imposing simi- 
lar high duties on the importation of foreign corn. 
Because the cost of production, and, therefore, the 
prices of various manufactured commodities, are 
raised to the consumer by one error in legislation, 
the country has been called upon, on the plea of 
justice, quietly to submit to fresh exactions. Be- 
cause we all pay an additional price for our linen, 
muslin, and cottons, it is thought just that we 
should pay also an additional price for our corn. 
Because, in the general distribution of the labour 
of the world, we have prevented the greatest 
amount of productions from being obtained by 
that labour in manufactured commodities; we 
should further punish ourselves by diminishing the 
productive powers of the general labour in the 
supply of raw produce. It would be much wiser 
to acknowledo'e the errors which a mistaken 
policy has induced us to adopt, and immediately 

/ i to commence a gradual recurrence to the sound 
' principles of an universally free trade. 

" I have already had occasion to remark," ob- 
serves M. Say, " in speaking of what is improper- 
ly called the balance of trade, that if it suits a mer- 
chant better to export the precious metals to a 
foreign country than any other goods, it is also the 
interest of the state that he should export them, 

^ because the state only gains or loses through the 

channel of its citizens ; and in what^ concerns fo- 
reign trade, that which best suits the individual, 
best suits also the state i therefore, by opposing 



335 

obstacles to the exportation which individuals 
would be inclined to make of the precious metals, 
nothing more is done, than to force them to sub- 
stitute some other commodity less profitable to 
themselves, and to the state. It must however be 
remarked, that I say only in what concerns foreign 
trade ; because the profits which merchants make 
by their dealings with their countrymen, as well as 
those which are made in the exclusive commerce 
with colonies, are not entirely gains for the state. 
In the trade between individuals of the same coun- 
try, there is no other gain but the value of an util- 
ity produced j Que la valeur d'une utilite produiie!'''* 
Vol. i. p. 401. I cannot see the distinction here 
made between the profits of the home and foreign 
trade. The object of all trade is to increase pro- 
ductions. If, for the purchase of a pipe of wine, I 
had it in my power to export bullion, which was 
bought with the value of the produce of one hun- 

* Are not the following passages contradictory to the one 
above quoted? "Besides, that home trade, though less no- 
ticed, (because it is in a variety of hands) ia the most consi- 
derable, it is also the most profitable. The commodities ex- 
changed in that trade are necessarily the production of the 
same country." VoL i. p. 84. 

" The English government has not observed, that the most 
profitable sales are those which a country makes to itself, 
because they cannot take place, without two values being 
produced by the nation; the value which is sold, and the 
value with which the purchase is made." Vol. i. p. 221. 

I shall in the 24th chapter, examine the soundness of this 
opinion. 



336 

dred days' labour, but govehiment, hy prohibiting: 
the exportation of bulhon, should oblige me to 
purchase my wine with a commodity bought with 
the value of the produce of one hundred antf 
five days' labour, the produce of five days' la- 
bour is lost to me, and, through me, to the 
state. But if these transactions took place be- 
tween individuals, in different provinces of the 
same country, the same advantage would accrue 
both to the individual, and, through him, to the 
country, if he were unfettered in his choice of 
the commodities, with which he made his pur* 
chases ; and the same disadvantage, if he were 
obliged by government to purchase with the 
least beneficial commodity. If a manufacturer . 
could work up, with the same capital, more iron 
where coals are plentiful, than he could where 
coals are scarce, the country would be benefited 
by the difierence. But if coals were no where 
plentiful, and he imported iron, and could get ihis 
additional quantity, by the manufacture of a com- 
modity, with the same capital and labour, he would 
in like manner benefit his country by the additional 
quantity of iron. In the 6th chap, of this work, I 
have endeavoured to show that all trade, whether 
foreign or domestic,, is beneficial, by increasing the 
quantity, and not by increasing the value of pro- 
ductions. We shall have no greater value j* whe- 
ther we carry on the most beneficial home and 
foreign trade, or in consequence of being fettered 
by prohibitory laws, we are obliged to content 



33/ 

ourselves. with the least advantageous. The rate 
of profits, and the value produced, will be the 
same. The advantage always resolves itself into 
that which M. Say appears to confine to the home 
trade ; in both cases there is no other gain but 
that of the value of an utilite produite. 



43 



CHAPTER XXI. 

On Bounties on Production, 

. It may not be uninstructive to consider the effects 
of a bounty on the pt'oduction of raw produce and 
other commodities, with a view to observe the ap- 
plication of the principles which I have been en- 
deavouring to establish, with regard to the profits 
of stock, the annual, produce of the land and la-, 
hour, and the relative prices of manufactures and 
raw produce. In the first place, let us suppose 
that a tax was imposed on all commodities, for the 
purpose of raising a fund to be employed by go- 
vernment, in giving a bounty on the production of 
corn. As no part of such a tax would be expended 
by government, and as all that was received Irom 
one class of the people would be returned to 
another, the nation collectively would neither be 
richer nor poorer, from such a tax and bounty. 
It would be readily allowed, that the t^ on com- 
modities by which the fund was created, would 
raise the price of the commodities taxed ; all the 
consumers of those commodities therefore would 
contribute towards that fund ; in other words, their 
natural or necessary price being raised, so would 
too their market price. But for the same reason 
that the natural price of those commodities would 
fee raised, the natural price of corn would below- 



340 

©red ; before the bounty was paid on production, 
the farmers obtained as great a price for their corn 
ts was necessary to repay them their rent and 
their expenses, and afford them the general rate 
qf profits; after the bounty, they would receive 
more than that rate, unless the price of corn fell 
by a sum at least equal to the bounty. The ef- 
fect then of the tax and bounty, would be to raise 
the price of commodities in a degree equal to the 
tax levied on them, and to lower the price of corn 
by a sum equal to the bounty paid. It will be 
©bserved too, that no permanent alteration could 
be made In the distribution of capital between 
agriculture and manufactures, because as there 
would be no alteration, either in the amount of 
capital or population, there would be precisely 
the samo demand for bread and manufactures. 
The profits of the farmer would be no higher 
than the general level, after the fall in the price 
.of corn; nor would the profits of the manufac- 
turer be lower after the rise of manufactured 
goods ; the bounty then would not occasion any 
more capl;tal to be employed on the land in the 
production of corn, nor any less in the manufac- 
ture of goods. But how would the interest of 
the landlord be affected? On the same princi- 
ples that a tax on raw produce would lower the 
corn rent of land, leaving the money rent unal- 
tered, a bounty on production, which is directly 
the contrary of a tax, would raise corn rent, leav- 



341 

the money rent unaltered.* "With the same mo- 
ney rent (he landlord would have a greater price 
to pay for his manufactured goods, and a less price 
for his corn ; he would probably therefore be nei- 
ther richer nor poorer. 

Now whether such a measure would have any 
operation on the wages of labour, would depend 
on the que;stioji, whether the labourer, in purchas- 
ing commodities, would pay as much towards the 
tax, as he would receive from the bounty, in the 
low price of his food. If these two quantities 
were equal, wages would continue unaltered ; but 
if the commodities taxed were not those consumed 
by the labourer, his wages would fall, and his em- 
ployer would be benefited by the difference. 
But this is no real advantage to his employer ; it 
would indeed operate to increase the rate of his 
profits, as every fall of wages must do ; but in 
proportion as the labourer contributed less to the 
fund from which the bounty was paid, and which, 
let it be remembered, must be raised, his employer 
must contribute more ; in other words, he would 
contribute as much to the tax by his expenditure, 
as he would receive in the effects of the bounty 
and the higher rate of profits together. He ob- 
tains a higher rate of profits to requite him for 
his payment, not only of his own quota of the tax, 
but of his labourer's also ; the remuneration which 
he receives for his labourer's quota appears in 

* Sjee page 1 44. 



342 

diminished wages, or, which is the same thing, in 
increased profits ; the remuneration for his own 
appears in the diminution in the price of the corn 
which he consumes, arising from the bounty. 

Here it will be proper to remark the different 
effects produced on profits from an alteration in 
the real labour value of corn, and an alteration in 
the relative value of corn, from taxation and from 
bounties. If corn is lowered in price by an alter- 
ation in its labour price, not only will the rate of 
the profits of stock be altered, but the absolute 
profits also ; which does not happen, as we have 
just seen, when the fall is occasioned artificially 
by 'a bounty. In the real fall in the value of corn, 
arising from less labour being required to produce 
one of the most important objects of man's con- 
sumption, labour is rendered more productive. 
With the same capital the same labour is employed, 
and an increase of productions is the result; not 
only then will the rate of profits, but the absolute 
profits of stock be increased ; not only will each 
capitalist have a greater money revenue, if he em- 
ploys the same money capital, but also when that 
money is expended, it will procure him a greater 
sum of commodities; his enjoyments will be aug- 
mented. In the case of the bounty, to balance 
the advantage which he derives from the fall of 
one commodity, he has the disadvantage of pay- 
ing a price more than proportionally, high for 
another ; he receives an Increased rate of profits 
in order to enable him to pay this higher price ; 



343 

so that his real situation is in no way improred : 
though he gets a higher rate of profits, he has no 
greater command of the produce of the land and 
labour of the country. When the fall in the va- 
lue of corn is brought about by natural causes, \t 
is nof counteracted by- the rise of other commo- 
dities ; on the contrary, they fall from the raw 
material falling from which they are made : but 
when the fall in corn is occasioned by artificial 
means, it is always counteracted by a real rise in 
the value of some other commodity, so that if 
corn be bought cheaper, other commodities are 
bought dearer. 

This then is a further proof, that no particular 
disadvantage arises from taxes on necessaries, on 
account of their raising wages and lowering the 
rate of profits. Profits are indeed lowered, but 
only to the amount of the labourer's portion of 
the tax, which must, at all events, be paid either 
by his employer, or by the consumer of the pror' 
duce of the labourer's work. Whether you de- 
duct 50/. per annum from the employer's revenue, 
or add 50/. to the prices of the commodities which 
he consumes, can be of no other consequence to 
him or to the community, than as it may equally 
affect all other classes. If it be added to the 
prices of the commodity, a miser may avoid the 
tax by not consuming ; if it be indirectly deducted 
froni every man's revenue, he cannot avoid paying 
bis fair proportion of the public burdens. 



344 

A bounty on the production of corn then, would 
produce no real effect on the annual produce of 
the land and labour of the country, although it 
would niake com relatively cheap, and manufac- 
tures relatively dear. But suppose now that a 
contrary measure should be adopted, that a tax 
should be raised on corn for the purpose of afford- 
ing a fund for a bounty on the production of com- 
modities. 

In such case, it is evident that corn would be 
dear, and commodities' cheap ; labour would con- 
tinue at the same price, if the labourer were as 
much benefited by the cheapness of commodities 
as he was injured by the dearness of corn ; but 
if he were not, wages would rise, and profits would 
fall, while money rent would continue the same as 
before; profits would fall, because, as we have 
just explained, that would be the mode in which 
the labourer's share of the tax would be paid by 
the employers of labour. By the increase of wa- 
ges the labourer would be compensated for the 
tax which he would pay in the increased price of 
corn ; by not expending any part of his wages on 
the manufactured commodities, he would receive 
no part of the bounty ; the bounty would be all 
received by the employers, and the tax would be 
partly paid by the employed ; a remuneration 
would be made to the labourers, in the shape of 
wages, for this increased burden laid upon them, 
and thus the rate of profits would be reduced. 



345 

In this case too there would be a complicated 
measure producing no national result whatever. 

In considering this question, we have purposely 
left out of our consideration the effect of such a 
measure on foreign trade ; w*e have . rather been 
supposing the case of an insulated country, having 
no commercial connexion with other countries. 
We have seen that as the demand of the country 
for corn and commodities would be the same, 
whatever direction the bounty might take, there 
would be no temptation to remove capital from one 
employment to another: but this would no longer 
be the case if there were foreign commerce, and 
that commerce were free. By altering the rela- 
tive value of commodities and corn, by producing 
so powerful an effect on their natural prices, we 
should be applying a strong stimulus to the ex- 
portation of those commodities whose natural 
prices were lowered, and an equal stimulus to the 
importation of those commodities whose natural 
prices were raised, and thus such a financial mea- 
sure might entirely alter the natural distribution 
of employments ; to the advantage indeed of the 
foreign countries, but ruinously to that in which 
so absurd a policy was adopted. 



44 



CHAPTER XXII. 

Doctrine of Adam Smith concerning the rent of land, 

" SUCH parts only of the produce of land," says 
Adam Smith, " can commonly be brought to mar- 
ket, of which the ordinary price is sufficient to re- 
place the stock which must be employed in bring- 
ing them thither, together with its ordinary profits. 
If the ordinary price is morie than this, the surplus 
part of it will naturally go to the rent of land. If 
it is not more^ though the commodity can he brought 
to market^ it can afford no rent to the landlord. Whe- 
ther the price is or is not more, depends upon the 
demand." 

This passage would naturally lead the reader to 
conclude that its author could not have mistaken 
the nature of rent, and that he must have seen that 
the quality of land which the exigencies of society 
might require to betaken into cultivation would 
depend on " the ordinary price of its produce,'''' whe- 
ther it were " suffcient to replace the stock, which 
must be employed in cultivating it, together with its 
ordinary profits.'''' 

But he had adopted the notion that " there were 
some parts of the produce of land for which the 
demand must always be such as to afford a greater 
price than what is sufficient to bring them to mar- 
ket ; and he considered food as one of those parts. 



348 

He sajs, that " fand, In almost any situation, 
produces a greater quantity of food than what is 
sufficient to maintain all the labour necessary for 
bringing it to market, in the most liberal way in 
which labour is ever maintained. The surplus, too, 
is always more than sufficient to replace the stock 
which employed that labour, together with its pro- 
fits. Something, therefore, always remains for a 
rent to the landlord." 

But what proof does he give of this ? — no other 
than the assertion that " the most desert moors in 
Norway and Scotland produce some sort of pas- 
ture for cattle, of which the milk and the increase 
are always more than sufficient, not only to main- 
tain all the labour necessary for tending them, and 
to pay the ordinary profit to the farmer, or owner 
of the herd or flock, but to afford some small rent 
to the landlord." Now of this I may be permitted 
to entertain a doubt. I believe that as yet in 
every country, from the rudest to the most re- 
fined, there island of such a quality that it cannot 
yield a produce more than sufficiently valuable to 
replace the stock employed upon it, together with 
the profits ordinary and usual in that country. In 
America we all know that this is the case, and yet 
no one maintains that the principles which regur 
late rent are different in that country and in 
Europe. But if it were true that England had so 
far advanced in cultivation, that at this time there 
Avere no lands remaining which did not afford a 
rent, it would be equally true that there formerly 



349 

must have been such lands; and that whether 
there be or not is of no importance to this ques- 
tion, for it is the same thing if there be any capital 
employed in Great Britain on land which yields 
only the return of stock with its ordinary profits, 
whether it be employed on old or on new land. If 
a farmer agrees for land on a lease of seven ot 
fourteen years, he may propose to employ on it a 
capital of 10,000/., knowing that at the existing 
price of grain and raw produce, he can replace 
that part of his stock which he is obliged to ex- 
pend, pay his rent, and obtain the general rate of 
profit. He will not employ 11,000/. unless the 
last 1000/. can be employed so productively as to 
afford him the usual profits of stock. In his cal- 
culation, whether he shall employ it qr not, he 
considers only whether the price of raw produce 
is sufficient to replace his expenses and profits, for 
he knows that he shall have no additional rent t6 
pay. Even at the expiration of his lease his rent 
will not be raised ; for if his landlord should re- 
qyire rent, because this additional 1000/. was em- 
ployed, he would withdraw it ; since by employing 
it he gets, by the supposition, only the ordinary 
and usual profits which he may obtain by any 
other employment of stock ; and therefore he can- 
not afford to pay rent for it, unless the price of 
raw produce should further rise, or, which is the 
same thing, unless the usual and general rate of 
profits should fall. 



350 

If the comprehensive mind of Adam Smith had 
been directed to this fact, he would not have main- 
tained that rent forms one of the component parts 
of the price of raw produce; for price is every 
vrhere regulated by the return obtained by this 
last portion of capital, for which no rent whatever 
is paid. If he had adverted to this principle, he 
would have made no distinction between the law 
which regulates the rent of mines and the rent of 
land. 

" Whether a coal mine, for example," he says, 
" can afford any rent, depends partly upon its fer- 
tility, and partly upon its situation, A mine of any 
kind may be said to be either fertile or barren, ac- 
cording as the quantity of mineral which can be 
brought from it by a certain quantity of labour, is 
greater or less than what can be brought by an 
equal quantity from the greater part of other 
^ines of the same kind. Some coal mines, ad- 
vantageously situated, cannot be wrought on ac- 
count of their barrenness. The produce does not 
pay the expense. They can afford neither profit 
nor rent. There are some, of which the produce 
is barely sufficient to pay the labour, and replace, 
together with its ordinary profits, the stock em- 
ployed in working them. They afford some pro- 
fit to the undertaker of the work, but no rent to 
the landlord. They can be wrought advantage- 
ously by nobody but the landlord, who being him- 
self the undertaker of the work, gets the ordinary 
profit of the capital which he employs in it. Many 



351 

coal mines in Scotland are wrought in this man- 
ner, and can be wrought in no other. The land- 
lord will allow no body else to work them with- 
out paying some rent, and nobody can afford to 
pay any. 

" Other coal mines in the same country, suffi- 
ciently fertile, cannot be wrought on account of 
their situation. A quantity of mineral sufficient to 
defray the expense of working, could be brought 
from the mine by the ordinary, or even less than 
the ordinary quantity of labour ; but in an inland 
country, thinly inhabited, and without either good 
roads or water-carriage, this quantity could not be 
sold." The whole principle of rent is here admi- 
rably and perspicuously explained, but every word 
is as applicable to land as it is to mines ; yet he 
affirms that "it is otherwise in estates above 
ground. The proportion, both of their produce 
and of their rent, is in proportion to their absolute, 
and not to their relative fertility." But suppose 
that there were no land which did not afford a 
rent ; then, the amount of rent on the worst land 
would be in proportion to the excess of the value 
of the produce above the expenditure of capital and 
the ordinary profits of stock : the same principle 
would govern the rent of land of a somewhat bet- 
ter quality, or more favourably situated, and there- 
fore the rent of this land would exceed the rent of 
that inferior to it, by the superior advantages 
which it possessed ; the same might be said of 
that of the third quality, and so on to the very 



352 

best, is it not then as certain that it is the relative 
fertiHty of the land which determines the portion 
of the produce which shall be paid lor the rent of 
land, as it is that the relative fertiHty of mines 
determines the portion of their produce, which 
shall be paid for the rent of mines? 

After Adam Smith has declared that there are 
some mines which can only be worked by the 
owners, as they will only afford sufficient to defray 
the (expense of working, together with the ordinary 
profits of the capital employed, we should expect 
that he would admit that it was these particular 
mines which regulated the price of the produce^ 
If the old mines are insufficient to supply the quan- 
tity of coal required, the price of coal will rise, 
and will continue rising till the owner of a new and 
inferior mine finds that he can obtain the usual 
profits of stock by working his mine. If his mine 
be tolerably fertile, the rise will not be great be- 
fore it becomes his interest so to employ his capi- 
tal ; but if it be less productive, it is evident that 
the price must continue to rise till it will afford him 
the means of paying his expenses, and obtaining 
the ordinary profits of stock. It appears, then, 
that it is always the least fertile mine which regu- 
late^ the price of coal. Adam Smith, however, is 
of a different opinion: he observes, that "the 
most fertile coal mine too regulates the price of 
coals at all the other mines in its neighbourhood. 
Both the proprietor and the undertaker of the 
work find, the one that he can get a greater rent. 



353 

the other, that he can get a greater profit, by 
somewhat underselhng all their neighbours. Their 
neighbours are soon obliged to sell at the same 
price, though they cannot so well aflford it, and 
though it always diminishes, and sometimes takes 
away altogether, both their rent and their profit. 
Some works are abandoned altogether; others 
can afford no rent, and can be wrought only 
by the proprietor." If the demand for coal should 
he diminished, or if by new processes the quantity 
should be increased, the price would fall, and 
some mines would be abandoned; but in every 
case, the price must be sufficient fo pay the ex- 
penses and profit of that mine which is worked 
without being charged with rent. It is, therefore, 
the least fertile mine which regulates price. In- 
deed it is so stated in another place by Adam 
Smith himself, for he says, " The lowest price at 
which coals can be sold for any considerable time, 
is like that of all other commodities, the price which 
is barely sufficient to replace, together with its ordi- 
nary profits, the stock which must be employed in 
bringing them to market. At a coal mine for 
which the landlord can get no rent, but which he 
must either work himself, or let it alone alto- 
gether, the price of coals must generally be nearly 
about this price." 

But the same circumstance, namely, the abun- 
dance and consequent cheapness of coals, from what- 
ever-cause it may arise^ which would make it neces- 
sary to abandon those mines on which there was no 
45 



344 

rent, or a very moderate*one, would, if there were 
the same abundance, and consequent cheapness of 
raw produce, render it necessary to abandon the 
cultivation of those lands for which either no rent 
was paid, or a very moderate one. If, for exam- 
ple, potatoes should become the general and com- 
mon food of the people, as rice is in some coun- 
tries, one fourth, or one half of the land now in 
cultivation, would probably be immediately aban- 
doned ; for if, as Adam Smith says, " an acre of 
potatoes will produce six thousand weight of solid 
nourishment, three times the quantity produced by 
the acre of wheat," there could not be for a consi- 
derable time such a multiplication of people, as to 
consume the quantity that might be raised on the 
land before employed for the cultivation of wheat; 
much land would consequently be abandoned, and 
rent would fall; and it would not be till the popu- 
lation had been doubled or trebled, that the same 
quantity of land could be in cultivation, and the 
rent paid for it as high as before. 

Neither would any greater proportion of the 
gross, produce be paid to the landlord, whether it 
consisted of potatoes, which would feed three hun- 
dred people, or of wheat, which would feed only one 
hundred ; because, though the expenses of pro- 
duction would be very much diminished if the la- 
bourer's wages were chiefly regulated by the price 
of potatoes and not by the price of wheat, and 
though, therefore, the proportion of the whole 
gross produce, after paying the labourers, would 



355 

be greatly increased, yet no part of that additional 
proportion would jjgo to rent, but the whole, inva'- 
fiably, to profits — profits being at all times raised. 
as wages fall, and lowered as wages rise. Whe- 
ther wheat or potatoes were cultivated, rent would^ 
be governed by the same principle — it would be 
always equal to the difference between the quan- 
tities of produce obtained with equal capitals, 
either on the same land or on land of different 
quahties; and, therefore, while lands of the same 
quahty were cultivated, and there was no alteration 
in their relative fertility or advantages, rent would 
always bear the same proportion to the gross pro- 
duce. 

Adam Smith, however, maintains that the pro- 
portion which falls to the landlord would be in- 
creased by a diminished cost of production, and 
therefore, that he would receive a larger share as 
well as a larger quantity, from an abundant than 
from a scanty produce. "A rice field," he says, 
" produces a much greater quantity of food than 
the most fertile corn field. Two crops in the 
year, from thirty to sixty bushels each, are said to 
be the ordinary produce of an acre. Though its 
cultivation therefore requires more lajbour, a much 
greater surplus remains after maintaining all that 
labour. In those rice countries, therefore, where rice 
is the common and favourite vegetable food of the 
people, and where the cultivators are chiefly main- 
tained with it, a greater share of this greater surplus 
should belong to the landlord than in corn countries,'''' 



356 

Mr. Buchanan also remarks, that "it is quite 
clear, that if anj other produce which the land 
yielded more abundantly than corw, were to be-. 
Gome the common food of the people, the rent of 
the landlord would be improved in proportion to 
its greater abundance." 

If potatoes were to become the common food of 
the people, there would be a long interval during 
which the landlords would suffer an enormous de- 
duction of rent. They would not, probably, re- 
ceive nearly so much of the sustenance of man as 
they now receive, while that sustenance would fall 
to a third of its present value. But all manufac- 
tured commodities, on which a part of the land-, 
lord's rent is expended, would suffer no other fall 
than that which proceeded from the fall in the raw 
material of which they were made, and which 
would arise only from the greater fertihty of the 
land, which might then be devoted to its produc- 
tion. 

When, from the progress of population, land of 
the same quality as before should be taken into 
cultivation, to produce the food required, and the 
same number of men should be employed in pro- 
ducing it, the landlord would have not only the 
same proportion of the produce as before, but that 
proportion would also be of the same value as be- 
fore. Rent then would be the same as before ; 
profits, however, would be much higher, because 
the price of food, and consequently of wages, 
would be much lower. High profits are favour- 



357 

able to the accumiijation of capital. The demand 
for labour would further increase, and landlords 
would be permanently benefited by the increased 
demand for land. 

The interest of the landlord is always oppose^ 
to that of the consumer and manufacturer. Corn 
can be permanently at an advanced price, only be- 
cause additional labour is necessary to produce it; 
because its cost of production is increased. The 
same cause invariably raises rent ; it is, therefore, 
for the interest of the landlord that the cost at- 
tending the production of corn should be increased. 
This, however, is not the interest of the consumer; 
to him it is desirable that corn should be low rela- 
tively to money and commodities, for it is always 
with commodities or money that corn is purchased. 
Neither is it the interest of the manufacturer that 
corn should be at a high price, for the high price 
of corn will occasion high wages, but will not raise 
the price of his commodity. Not only then must 
more of his commodity, or, which comes to the 
same thing, the value of more of his commodity, 
be given in exchange for the corn which he him- 
self consumes, but more must be given, or the 
value of more, for wages to his workmen, for which 
he will receive no remuneration. All classes, 
therefore, except the landlords, will be injured by 
the increase in the price of corn. The dealings 
between the landlord and the public are not like 
dealings in trade, whereby both the seller and 
buyer may equally be said to gain, but the loss is 



3^58 

wholly on one side, and the gain wholly on the 
other ; and if corn could, by importation, be pro- 
cured cheaper, the loss in consequence of not im- 
porting is far greater on one side, than the gain is 
on the other. 

Adam Smith never makes any distinction be- 
tween a low value of money, and a high value of 
corn, and therefore infers, that the interest of the 
landlord is not opposed to that of the rest of the 
community. In the first case, money is low rela- 
tively to all commodities ; in the other, corn is high 
relatively to all. In the first, corn and commodi- 
ties continue at the same relative values; in the 
second, corn is higher relatively to commodities as 
well as money. 

The following observation of Adam Smith is 
applicable to alow value of money, but it is totally 
inapplicable to a high value of corn. " If impor- 
tation (of corn) was at all times free, our farmers 
and country gentlemen would probably, one year 
with another, get less money for their corn than 
they do at present, when importation is at most 
times in effect prohibited ; but the money which 
they got would be of more value, would buy more 
goods of all other kinds, and would employ more 
labour. Their real wealth, their real revenue, 
therefore, would be the same as at present, though 
it might be expressed by a smaller quantity of sil- 
ver; and they would neither be disabled nor dis- 
couraged from cultivating corn as touch as they do 
at present. On the contrary, as the rise in the 



359 

Heal value of silver, in consequence of lowering the 
money price of corn, lowers somewhat the money 
price of all other commodities, it giveathe industry 
of the country where it takes place, some advantage 
in all foreign markets, and thereby tends to encour- 
age and increase that industry. But the extent of the 
home market for corn, must be in proportion to 
the general industry of the country where it grows, 
or to the number of those who produce something 
else, to give in exchange for corn. But in every 
country the home market, as it is the nearest and 
most convenient, so is it likewise the greatest and 
most important market for corn. That rise in the 
real value of silver, therefore, which is the effect of 
lowering the average money price of corn, tends 
to enlarge the greatest and most important market 
for corn, and thereby to encourage, instead of dis- 
couraging its grow^th." 

A high or low money price of corn, arising from 
the abundance and cheapness of gold and silver, is 
of no importance to the landlord, as every sort of 
produce would be equally affected, just as Adam 
Smith describes; but a relatively high price of 
corn is at all times greatly beneficial to the land- 
lord, as with the same quantity of corn it not only 
gives him a command over a greater quantity of 
money, but over a greater quantity of every com- 
modity which money can purchase. 



CHAPTER XXIII. 

On Colonial Trade. 

Adam Smith, in his observations oh colonial 
trade, has shown, most satisfactorily, the advan- 
vantages of a free trade, and the injustice suffered 
by colonies, in being prevented by their mother 
countries, from selling their produce at the dear- 
est market, and buying their manufactures and 
stores at the cheapest. He has shown, that, by 
permitting every country freely to exchange the 
produce of its industry when and where it pleases, 
the best distribution of the labour of the world 
will be effected, and the greatest abundance of the 
necessaries and enjoyments of human life will be 
secured. 

He has attempted also to show, that this free- 
dom of commerce, which undoubtedly promotes 
the interest of the whole, promotes also that of 
each particular country ; and that the narrow po- 
licy adopted in the countries of Europe respecting 
their colonies, is not less injurious to the mother 
countries themselves, than to the colonies whose 
interests are sacrificed. 

" The monopoly of the colony trade,"" he says, 

" like all the other mean and malignant expedients 

of the mercantile system, depresses the industry of 

all other countries, but chiefly that of the colonies, 

46 



362 

without, in the least, increasing, but, on the con- 
trary diminishing, that of the country in whose 
favour it is established." 

This part of his subject, however, is not treated 
in so clear and convincing a manner as that in 
which he shows the injustice of this system to- 
wards the colony. 

Without affirming or denying, that the actual 
practice of Europe with regard to their colonies 
is injurious to the mother countries, I may be per- 
mitted to doubt vvhether a mother country may 
not sometimes be benefited by the restraints to 
which she subjects her colonial possessions. Who 
can doubt, for example, that if England were 
the colony of France, the latter country would be 
benefited by a heavy bounty paid by England on 
the exportation of corn, cloth, or any other com- 
modities ? In examining the question of bounties, 
on the supposition of corn being at 4/. per quarter 
in this country, we saw, that with a bounty of 10^. 
per quarter, on exportation in England, corn would 
have been reduced to 31. lOs. in France. Now, if 
corn had previously been at 3/. 15,5. per quarter in 
France, the French consumers would have been 
benefited by 5^. per quarter on all imported corn; 
if the natural price of corn in France was before 4/. 
they would have gained the whole bounty of JO^. 
per quarter. France would thus be benefited by 
the loss sustained by England ; she would not gain 
a part only of what England lost, but in some cases 
the whole. 



363 

It may, however, be said, that a bounty on ex- 
portation is a measure of internal pohcy, and could 
not easily be imposed by the mother country. 

l{ it would suit the interests of Jamaica and 
Holland to make an exchange of the commodities 
which they respectively produce, without the in- 
tervention of England, it is quite certain, that by 
their being prevented from so doing, the interests 
of Holland and Jamaica would suffer; but if Ja- 
maica is obliged to send her goods to England, and 
there exchange them for Dutch goods, an English 
capital, or English agency, will be employed in a 
trade in which it would not otherwise be engaged. 
It Is allured thither by a bounty, not paid by Eng- 
land, but by Holland and Jamaica. 

That the loss sustained, through a disadvan- 
tao-eous distribution of labour in two countries, 
may be beneficial to one of them, while the other 
is made to suffer more than the loss actually be- 
longing to such a distribution, has been stated by 
Adam Smith himself; which, if true, will at once 
prove that a measure, which may be greatly hurt- 
ful to a colony, may be partially beneficial to the 
mother country. :> 

Speaking of treaties of commerce, he says^s* 
" When a nation binds itself by treaty, either to 
permit the entry of certain goods from one foreign 
country which it prohibits from all otliers, dv^'^ 
to exempt the goods of one country from duties 
to which it subjects those of all others, the coun- 
try, or at least the merchants and manufacturers 



364 

of the country, whose commerce is so favoured, 
must necessarllj derive great advantage from the 
treaty. Those merchants and manufacturers en- 
joy a sort of monopoly in the country, which is so 
indulgent to them. That country becomes a mar- 
ket both more extensive and more advantageous 
for their goods; more extensive, because the 
goods of other nations, being either excluded or 
subjected to heavier duties, it takes off a greater 
quantity of them ; more advantageous, because the 
merchants of the favoured country enjoying a sort 
of monopoly there, will often sell their goods for a 
better price than if exposed to the free competition 
of all other nations." 

Let the two nations, between which the com- 
mercial treaty is made, be the mother country and 
her colony, and Adam Smith, it is evident, admits, 
that a mother country may be benefited by op- 
pressing her colony. It may, however, be again 
remarked, that unless the monopoly of the foreign 
market be in the hands of an exclusive company, 
no more will be paid for commodities by foreign pur- 
chasers than by home purchasers; the price which 
they will both pay will not differ greatly from their 
natural price in the country where they are pro- 
duced. England, for example, will, under ordinary 
circumstances, always be able to buy French goods, 
at the natural price of those goods in France, and 
France would have an equal privilege of buying 
English goods at their natural price in England. 
But at these prices, goods would be bought without 



3165 

a treaty. Of what advantage or disadvantage then 
is the treaty to either party ? 

The disadvantage of the treaty to the importing 
country would be this : It would bind her to pur- 
chase a commodity, from England, for example, at 
the natural price of that commodity in England, 
when she might perhaps have bought it at the 
much lower natural price of some other country. 
It occasions then a disadvantageous distribution of 
the general capital, which falls chiefly on the 
country bound by its treaty to buy in the least 
productive market; but it gives no advantage to 
the seller on account of any supposed monopoly, 
for he is prevented by the competition of his own 
countrymen from selling his goods above their 
natural price ; at which he. would sell them, whe- 
ther he exported them to France, Spain, or the 
West Indies, or sold them for home consumption. 

In what, then, does the advantage of the stipu- 
lation in the treaty consist? It consists in this: 
These particular goods could not have been made 
in England for exportation, but for the privilege 
which she alone had of serving this particular mar- 
ket ; for the competition of that country, where 
the natural price was lower, would have deprived 
her of all chance of sellino^ those commodities. 
This, however, would have been of little impor- 
tance, if England Were quite secure that she could 
sell to the same amount any other goods which 
she might fabricate, either in the French market, 
or with equal advantage in any other. The ob- 



3m 

ject which England has in view, is, for example, to 
buy a quaPitity of French wines of the value of 
5000/. ; she desires then to sell goods somewhere 
by which she may get 5000/. for this purpose. If 
France gives her a monopoly of the cloth market, 
she will readily export cloth for this purpose ; but 
if the trade is free, the competition of other coun- 
tries may prevent the natural price of cloth in Eng- 
land from being sufficiently low to enable her to get 
5000/. by the sale of cloth, and to obtain the usual 
profits by such an employment of her stock. The 
industry of England must be employed then on 
some other commodity ; but theYe may be none of 
her productions which, at the existing value of 
money, she can afford to sell at the natural price, 
of other countries. What is the consequence ? 
The wine drinkers of England are still willing to 
give 500C/. for their wioe, and consequently 5000/. 
in money is exported to France for that purpose. 
By this exportation of money its value is raised in 
England, and lowered in other countries ; and 
with it the natural price of all commodities pro- 
duced by British industry is also lowered. The 
advance iti the price of money is the same thing 
as the declme in the price of commodities. To 
obtain 5000/., British commodities may now be 
exported ; for, at their reduced natural price, they 
may now enter into competition with the goods of 
other Countries. More goods are sold, however, 
at the low prices to obtain the 5000/. required, 
w^hich, when obtained, will not procure the same 



3187 

quantity of wine ; because, whilst the diminution 
of money in England has lowered the natural 
price of goods there, the increase of money in 
France has raised the natural price of goods and 
wine in France. Less wine, then, will be import- 
ed into England, in exchange for its commodities, 
when the trade is perfectly free, than when she is 
peculiarly favoured by commercial treaties. The 
rate of profits, however, will not have varied; 
money will have altered in relative value in the 
two countries, and the advantage gained by France 
will be the obtaining a greater quantity of English, 
in exchange for a given quantity of French goods^ 
while the loss sustained by England will consist in 
obtaining a smaller quantity of French goods in 
exchange for a given quantity of those of England. 
Foreign trade, then, whether fettered, encour- 
aged, or free, will always continue, whatever may 
be the comparative difficulty of production in dif- 
ferent countries ; but it can only be regulated by 
altering the natural price, not the natural value at 
which commodities can be produced in those coun-» 
tries, and that is effected by altering the distribu- 
tion of the precious metals. This explanation con- 
firms the opinion which I have elsewhere given, 
that there is not a tax, a bounty, or a prohibition 
on the importation or exportation of commodities 
which does not occasion a different distribution of 
the precious metals, and which does not, therefore, 
every where alter both the natural and the mar- 
ket piace of commodities. ' 



368 

It is evident, then, that the trade with a colony 
inay be so regulated, that it shall at the same time 
be less beneficial to the colony, and more beneficial 
to the mother country, than a perfectly free trade. 
As it is disadvantageous to a single consumer to 
be restricted in his dealings to one particular shop, 
so is it disadvantageous for a nation of consumers 
to be obliged to purchase of one particular coun- 
try. If the shop or the country afforded the goods 
required the cheapest, they would be secure of 
selling them without any such exclusive privilege ; 
and if they did not sell cheaper, the general in- 
terest would require that they should not be en- 
couraged to continue a trade which they could not 
carry on at an equal advantage with others. The 
shop, or the selling country, might lose by the 
change of employments, but the general benefit is 
never so fully secured, as by the most productive 
distribution of the general capital ; that is to say^ 
by an universally free trade. 

An increase in the cost of production of a com- 
modity, if it be an article of the first necessity, will 
not necessarily diminish its consumption ; for al- 
though the general power of , the purchasers to 
consume, is diminished by the rise of any one com- 
modity, yet they may relinquish the consumption 
of some other commodity whose cost of produc- 
tion has not risen. In that case, the quantity sup- 
plied will be iu the same proportion to the demand 
as before ; the cost of production only will have 
increased, and yet the price will rise, and must 



369 

rise, to place the profits of the producer of the en- 
hanced commodity on a level with the profits de- 
rived from other trades. 

M. Saj acknowledges that the cost of production 
is the foundation of price, and yet in various parts 
of his book he maintains that price is regulated hj 
the proportion which demand bears to supply. 
The real and ultimate regulator of the relative 
value of any two commodities, is the cost of their 
production, and neither the respective quantities 
which may be produced, nor the competition 
amongst the purchasers. 

According to Adam Smith the colony trade, by 
being one in which British capital only can be 
employed, has raised the rate of profits of all 
other trades; and as, in his opinion, high pro- 
fits, as well as high wages, raise the prices of 
commodities, the monopoly of the colony trade has 
been, according to him, injurious to the mother 
country ; as it has diminished her power of selling 
manufactured commodities as cheap as other 
countries. He says, that " in consequence of the 
monopoly, the increase of the colony trade has 
not so much occasioned an addition to the trade 
which Great Britain had before, as a total change 
in its direction. Secondly, this monopoly has ne- 
cessarily contributed to keep up the rate of profit 
in all the different branches of British trade, higher 
than it naturally would have been, had all nations 
been allowed a free trade to the British colonies." 
" But whatever raises in any country the ordinary 
47 



370 

rate of profit higher than It otlierwise would be, 
necessarily subjects that country both to an abso- 
lute, and to a relative disadvantage in every branch 
of trade of which she has not the monopoly. It sub- 
jects her to an absolute disadvantage, because in 
such branches of trade, her merchants cannot get 
this greater profit without selling dearer than they 
otherwise would do, both the goods of foreign 
countries which they import into their own, and 
the goods of their own country which they export 
to foreign countries. Their own country must 
both buy dearer and sell dearer ; must both buy 
less and sell less ; must both enjoy less and pro- 
duce less than she otherwise would do." 

" Our merchants frequently complain of the 
high wages of British labour as the cause of their 
manufactures being undersold in foreign markets ; 
but they are silent about the high profits of stock. 
They complaim of the extravagant gain of oth^r 
people, but they say nothing of their own. The 
high profits of British stock, however, may contri- 
bute towards raising the price of British manufac- 
ture in many cases as much, and in some perhaps 
more, than the high wages of British labour." 

I allow that the monopoly of the colony trade 
will change, a'nd often prejudicially, the direction 
of capital; but from what I have alreadv said on 
the subject of profits, it will be seen that any 
change from one foreign trade to another, or from 
home to foreign trade, cannot, in my opinion, effect 
the rate of profits. The injury suffered will be 



371 

what I have just described ; there will be a worse 
distribution of the general capital and industry, 
and therefore less will be produced. The natural 
price of commodities will be raised, and therefore, 
though the consumer will be able to purchase to 
the same money value, he will obtain a less quan- 
tity of commodities. It will be seen too, that if it 
even had the effect of raising profits, it would not 
occasion the least alteration in price* ; prices being 
regulated neither by wages nor profits. 

And does not Adam Smith agree in this opinion, 
when he says, that " the price of commodities, or 
the value of gold and silver, as compared with 
commodities, depends upon the proportion be- 
tween the quantity of labour which is necessary, in 
order to bring a certain quantity of gold and silver 
to market, and that which is necessary to bring 
thither a certain quantity of any other sort of 
goods ?" That quantity will not be affected, 
whether profits be high or low, or wages low or 
high. How then can prices be raised by high 
profits ? 



CHAPTER XXIV. 

On Gross and JVei Revenue. 

,iDAM Smith constantly magnifies this advai 
tages which a country derives from a large gross^ 
rather than a large net income. " In proportion 
as a greater share of the capital of a country is 
employed in agriculture," he says, " the greater 
will be the quantity of productive labour which 
it puts into motion within the country; as will 
likewise be the value which its employment adds 
to the annual produce of the land and labour of 
the society. After agriculture, the capital em- 
plpyed in manufactures puts into motion the great- 
est quantity of productive labour, and adds the 
greatest value to the annual produce. That 
which is employed in the trade of exportation 
has the least effect of any of the three."* 

* M. Say is of the same opinion with Adam Smith : 
" The most productive employment of capital, for the country 
* in general, after that on the land, is that of manufactures 
and of home trade; because it puts in activity an industry 
of which the profits are gained in the country, while those 
capitals which are employed in foreign commerce, make the 
industry and lands of all countries to be productive, without 
distinction. 

" The employment of capital, the least favourable to a 
nation, is that of carrying the produce of one foreign country 
to another." Sot/, vol. ii. p. 1 20, . . 



374 

Granting for a moment that this were true; 
what would be the advantage resulting to a country 
from tL8 employment of a great quantity of pro- 
ductive labour, if, whether it employed that quan- 
tity or a smaller, its net rents and profits together 
would be the same. The whole produce of the 
land and labour of every country is divided into 
three portions ; of these, one portion is devoted 
to wages, another to profits, and the other to 
rent. It is from the two last portions only, that 
any deductions can be made for taxes, or for sav- 
ings ; the former, if moderate, constituting always 
the necessary expenses of production. To anin- 
dividual with a capital of 20,000/., whose profits 
were 2,000/. per annum, it would be a matter quite 
indifferent, whether his capital would employ a 
hundred or a thousand men, whether the com- 
modity produced sold for 10,000/. or for .20,000/. 
provided, in all cases, his profits were not dimin- 
ished below 2,000/. Is not the real interest of 
the nation similar ? Provided its net real income, 
its rent and profits, be the same, it is of no im- 
portance whether the nation consists of ten or 
twelve millions of inhabitants. Its power of sup- 
porting fleets and armies, and all species of un- 
productive labour, must be in proportion to its 
net, and not in proportion to its gross income. 
If five millions of men could produce as much 
food and clothing as was necessary for ten millioils, 
food and clothing for five millions would be the 
net revenue. Would it be of any advantage to 



375 

the country, that, to produce this same net re* 
venue, seven millions of men should be required, 
that is to say, that seven millions should be em- 
ployed to produce food and clothing sufficient for 
twelve millions ? The food and clothing of five 
millions would be still the net revenue. The em- 
ploying a greater number of men would enable 
us neither to add a man to our army and navy, 
nor to contribute one guinea more in taxes. 

It is not on the grounds of any supposed ad- 
vantage accruing from a large population, or of 
the happiness that may be enjoyed by a greater 
number of human beings, that Adam Smith sup- 
ports the preference of that employment of capi- 
tal which gives motion to the greatest quantity of 
industry, but expressly on the ground of its in- 
creasing the power of the country ; for he says, 
that " the riches, and, so far as power depends 
upon riches, the power of every country must al- 
ways be in proportion to the value of its annual 
produce, the fund from which all taxes must ulti- 
mately be paid." It must, however, be obvious, 
that the power of paying taxes is in proportion 
to the net, and not in proportion to the gross 
revenue. 

In the distribution of employments amongst 
all countries, the capital of poorer nations will 
be naturally employed in those pursuits wherein 
a great quantity of labour is supported at home, 
because in such countries the food and necessa- 
ries for an increasing population can be most easilv 



376 

procured. In rich countries, on the contrarj, 
where food is dear, capital will naturallj flow, 
when trade is free, into those occupations wherein 
the least quantity of labour is required to be main- 
lined at home : such as the carrying trade, the 
distant foreign trade, where profits are in propor- 
tion to the capital, and not in proportion to the 
quantity of labour employed.* 

Although I admit, that, from the nature of rent, 
a given capital employed in agriculture, on any 
but the land last cultivated, puts in motion a 
greater quantity of labour than an equal capital 
employed in manufactures and trade, yet I cannot 
admit that there is any difference in the quantity 
of labour employed by a capital engaged in the 
home trade, and an equal capital engaged in the 
foreign trade. 

" The capital which sends Scots manufactures 
to London, and brings back English corn and ma- 
nufactures to Edinburgh," says Adam Smith, 
" necessarily replaces, by every such operation, 

* " It is fortunate that the natural course of things draws 
capital, not to those employments where the greatest profits 
.are made, but to those where their operation is most profit- 
able to the community.'^ — Vol. ii. p. 122. M. Say has not 
told us what those employments are, which, while they are 
the most profitable to the individual, are not the most pro- 
fitable to the state. If countries with limited capitals, but 
with abundance of fertile land, do not early engage in foreign 
trade, the reason is because it is less profitable to individuals, 
and, therefore, also less profitable to Ihe state. 



377 

two British capitals which had both been em- 
plojed in the agriculture or manufactures^'. of 
Great Britain. 

" The capital employed in purchasing foreign 
goods for home consumption, when this purchase 
is made with the produce of domestic industry, 
replaces too, by every such operation, two distinct 
capitals; but one of them only is employed in 
supporting domestic industry. The capital which 
sends British goods to Portugal, and brings back 
Portuguese goods to Great Britain, replaces, by 
every such operation^ only one British capital, 
the other is a Portuguese one. Though the re- 
turns, therefore, of the foreign trade of con- 
sumption should be as quick as the home trade, 
the capital employed in it will give but one half 
the encouragement to the industry or productive 
labour of the country." 

This argumentappears tome to be fallacious; for 
though two capitals, one Portuguese and one Eng- 
lish, be employed, as Dr. Smith supposes, still the 
capital will be employed in the foreign trade, dou- 
ble of what would be employed in the home trade. 
Suppose that Scotland employs a capital of a thou- 
sand pounds in making linen, which she exchanges 
for the produce of simila rcapital employed in mak- 
ing silks in England. Two thousand pounds, and 
a proportional quantity of labour will be employed 
by the two countries. Suppose now, that Eng- 
land discovers, that she can import more linen 
from Germany, for silks which she before exported 
48 



378 

to Scotland, and that Scotland discovers that she 
can obtain more silks from France in return for 
her linen, than she before obtained from England, 
"will not England and Scotland immediately cease 
trading with each other, and will not the home 
trade of consumption be changed for a foreign 
trade of comsumption? But although two additional' 
capitals will enter into this trade, the capital of 
Germany and that of France, will not the same 
amount of Scotch and of English capital continue 
to be employed, and will it not give motion to the 
same quantity of industry as when it was engaged 
in the home trade ? 



CHAPTER XXV. 

On Currency and Banks. 

It is not my intention to detain the reader by 
any long dissertation on the subject of money. 
So much has already been written on currency, 
that, of those who give their attention to such sub- 
jects, none but the prejudiced are ignorant of its 
true principles. I shall, therefore, take only a 
brief survey of some of the general laws which 
regulate its quantity and value. 

Gold and silver, like all other commodities, are 
valuable only in proportion to the quantity of la- 
bour necessary to produce them, and bring them 
to market. Gold is about fifteen times dearer 
than silver, not because there is a greater demand 
for it, nor because the supply of silver is fifteen 
times greater than that of gold, but solely because 
fifteen times the quantity of labour is necessary 
to procure a given quantity of it. 
■ The quantity of money that can be employed 
in a country must depend on its value : if gold 
alone were employed for the circulation of com- 
modities, a quantity would be required, one fifteenth 
only of what would be necessary if silver were 
made use of for the same purpose. 

A circulation can never be so abundant as to 
overflow ; for by diminishing its value, in the same 



380 

proportion you will increase its quantity, and by 
increasing its value diminish its quantity.* 

While the state coins money, and charges no 
seignorage, monej will be of the same value as 
any other piece of the same metal of equal 
weight and fineness ; but if the state charges a 
seignorage for coinage, the coined piece of money 
will generally exceed the value of the uncoined 
piece of metal by the whole seignorage charged, 
because it will require a greater quantity of la- 
bour, or, which is the same thing, the value of 
the produce of a greater quantity of labour, to 
procure it. 

While the state alone coins, there can be no 
limit to this charge of seignorage ; for, by limit- 
ing the quantity of coin, it can be raised to any 
conceivable value. 

It is on this principle that paper money circu- 
lates : the whole charge for paper money may be 
considered as seignorage. Though it has no in- 
trinsic value, yet, by limiting its quantity, its va- 

* " The use of gold and silver then establishes iu every- 
place a certain necessity ^r these commodities : and when 
the country possesses the quantity necessary to satisfy this 
want, all that is further imported, not being in demand, is 
unfruitful in value, and of no use to its owners." — Say, vol. i. 
p. 187. 

In page 196, M..Say says, that supposing a country to re- 
quire 1000 carriages, and to be possessed of 1500 — all above 
1000 would be useless ; and thence he infers, that if it pos- 
sesses more money than is necessarxj, the overplus will not 
be employed. 



381 

iue in exchange is as great as an equal denomina- 
tion of coin, or of bullion in that coin. On the 
same principle too, namely, by a limitation of its 
quantity, a debased coin would circulate at the 
value it should bear, if it were ofthe legal weight 
and fineness, not at the value of the quantity of 
metal which it actually contained. In the history 
of the British coinage we find, accordingly, that 
the currency was never depreciated in the same 
proportion that it was debased ; the reason of 
which was, that it never was multiplied in pro- 
portion to its diminished value.* 

After the establishment of banks, the state has 
not the sole power of coining or issuing money. 
The currency may as efiectuaily be increased by 
paper as by coin; so that If a state were to de- 
base its money, and limit its quantity, It could not 
support its value, because the banks would have 
an equal power of adding to the whole quantity 
of circulation. 

On these principles it will be seen, that it is not 
necessary that- paper money should be payable 
in specie to secure its value ; it is only necessary 
that its quantity should be regulated according 
to the value of the metal which is declared to be 
the standard. If the standard were gold of a 
given weight and fineness, paper might be in- 

* Whatever I say of gold coin, is equally applicable to 
silver coin ; but it is not necessary to mention both on every 
occasion. 



382 

creased with every fall in the value of gold, or, 
which is the same thing in its effects, with every 
rise in the price of goods. 

" By issuing too great a quantity of paper," 
says Dr. Smith, " of which the excess was con- 
tinually returning, in order to be exchanged for 
gold and silver, the bank of England was, for 
many years together, obliged to coin gold to the 
extent of between eight hundred thousand pounds 
and a million a year, or, at an average, about eight 
hundred and fifty thousand pounds. For this 
great coinage the bank, in consequence of the 
worn and degraded state ifito which the gold coin 
had fallen a few years ago, was frequently obliged 
to purchase bullion at the high price of four pounds 
an ounce, which it soon after issued in coin at 3/. 
175. lO^f/. an ounce, losing, in this manner, be- 
tween two and a half and three per cent, upon 
the coinage df so very large a sum. Though 
the Bank, therefore, paid no seignorage, though 
the government was properly at the expense of 
the coinage, this liberality of government did not 
prevent altogether the expense of the bank." 
•.(On the principle above stated, it appears to me 
most clear, that by not re-issuing the paper thus 
brought in, the value of the whole currency, of 
the degraded as well as the new gold coin, would 
have been raised, when all demands on the Bank 
would have ceased. 

Mr. Buclianan, hoAvever, is not of this opinion, 
for he says, '• that the great expense to which the 



bank was at this time exposed, was occasioned, 
no't, as Dr. Smith seems to imagine, by any im- 
prudent issue of paper, but by the debased state 
of the currency,, and the consequent high price 
of bullion. The bank, it will be observed, having 
no other way of procuring* guineas but by send- 
ing, bullion to the mint to be coined, was always 
forced to issue new coined guineas, in exchange 
for its returned notes ; and when the currency 
was generally deficient in weight, and the price 
of bullion high in proportion, it became profitable 
to draw these heavy guineas from the bank in 
exchange for its paper; to convert them into bul- 
lion, and to sell them with a profit for bank pa- 
per, to be again returned to the bank for a new 
supply of guineas, which were again melted and 
sold. To this drain of specie, the bank must 
always be exposed while the currency is deficient 

* " In the transactions of government with individuals, 
and in those of individuals between themselves, a piece of 
money is net'er received, whatever denomination may be 
given to it, but at its intrinsic value, increased by the value 
of the utility which the impression it bears has added to it." 
Say, vol. 1. p. 327. 

, "Money is so little a mark of value, that if the pieces ol 
money lose a part of their value by friction, from use, or by 
the^ knavery of the clippers of money, all goods rise in price 
in proportion to the alteration which they have experienced : 
and if government orders a recoinage, and restores each 
piece to its legal weight and fineness, goods will fall to their 
former price; if they. have not been exposed to varialione 
from other causes."— Sflw/, vol. i. p. 340. ' 



384 

in weight, as both an easy and a certain profit 
then arises from the constant interchange of pa- 
per for specie. It may be remarked, however, 
that to whatever' inconvenience and expense the 
bank was then exposed by the drain of its specie, 
it' never was imagined necessary to rescind the 
obh'ffation to pay money for its notes." 

Mr. Buchanan evidently thinks that the whole 
currency must^ necessarily, be brought down to 
the level of the value of the debased pieces; but 
surely by a diminution of the quantity of the cur- 
rency, the whole that remains can be elevated to 
the value of the best pieces. 

Dr. Smith appears to have forgotten his own 
principle, in his argument on colony currency. 
Instead of ascribing the depreciation of that pa- 
per to its too great abundance, he asks whether, 
allowing the colony security to be perfectly good^ 
a hundred pounds, payable fifteen years hence, 
would be equally valuable with a hundred pounds 
to be paid immediately ? I answer yes, if it be 
not too abundant. 

Experience, however, shows, that neither a state 
nor a bank ever have had the unrestricted power 
of issuing paper money, without abusing that 
power : in all states, therefore, the issue of paper 
money ought to be under some check and con- 
trol ; and none seems so proper for that purpose 
as that of subjecting . the issuers of paper money 
to the obligation of paying their notes, either in 
sold coin or bullioff. 



385 

A currency is in its most perfect state when it 
consists wholly of paper money, but of paper mo- 
ney of an equal value with the gold which it pror 
fesses to represent. The use of paper instead of 
gold substitutes the cheapest in place of the most 
expensive medium, and enables the country, with- 
out loss to any individual, to exchange all the gold 
which it before used for this purpose, for raw ma- 
terials, utensils, and food, by the use of which both 
its wealth and its enjoyments are increased. 

In a national point of view it is of no importance 
whether the issuers of this well regulated paper 
money, be the government or a bank, it will on 
the whole be equally productive of riches, whether 
it be issued by one or by the other ; but it is not 
so with respect to the interest of individuals. In a 
country where the market rate of interest is 7 per 
cent., and where the state requires for a particular 
expense 70,000/. per annum, it is a question of 
importance to the individuals of that country whe- 
ther they must be taxed to pay this 70,000/. per 
annum, or whether they could raise it without 
taxes. Suppose that a million of money should be 
required to fit out an expedition. If the state is- 
sued a million of paper, and displaced a million of 
coin, the expedition would be fitted out without 
any charge to the people; but if a bank issued a 
million of paper, and lent it to government at 7 
per cent., thereby displacing a million of coin, the 
country would be charged with a continual tax of 
70,000/. per annum : the people would pay the 
49 



386 

tax, the bank would receive it, and the society 
would in either case be as wealthy as before ; the 
expedition would have been really fitted out by 
the improvement of our system, by rendering capi- 
tal, of the value of a million, productive in the 
form of commodities, instead of letting it remain 
unproductive in the form of coin ; but the advan- 
tage would always be in favour of the issuers of 
paper ; and as the state represents the people, the 
people would have saved the tax, if they, and not 
the bank, had issued this million. 

I have already observed, that if there were per-> 
feet security, that the power of issuing paper mo- 
ney would not be abused, it would be of no im- 
portance with respect to the riches of the country 
collectively, by whom it was issued ; and I have 
now shown that the public would have a direct 
interest that the issuers should be the state, and 
not a company of merchants and bankers. The 
danger, however, is, that this power would be 
more likely to be abused, if in the hands of govern- 
ment, than if in the hands of a banking company. 
A company would, it is said, bo more under the 
control of law, and although it might be their 
interest to extend their issues beyond the bounds 
of discretion, they would be limited and checked 
by the power which individuals would have of 
calling for bullion or specie. It is argued that the 
same check would not be long respected, if govern- 
ment had the privilege of issuing money ; that 
they would be too apt to consider present conve- 



370 

nience, rather than future securitj, and might, 
therefore, on the alleged grounds of expediency, 
be too much inclined to remove the checks, by 
which the amount of their issues was controlled. 

Under an arbitrary government this objection 
would have great force, but in a free country, 
with an enlightened legislature, the power of issu- 
ing paper money, under the requisite checks of 
convertibility at the will of the holder, might be 
safely lodged in the hands of commissioners ap- 
pointed for that special purpose, and they might 
be made totally independent of the control of mi- 
nisters. 

The sinking fund is managed by commission- 
ers, responsible only to parliament, and the invest- 
ment of the money entrusted to their charge, pro- 
ceeds with the utmost regularity ; what reason 
can there be to doubt that the issues of paper 
money might be regulated with equal fidelity, if 
placed under similar management ? 

ft may be said, that although the advantage 
accruing to the state, and, therefore, to the public, 
from issuing paper money, is sufficiently manifest, 
as it would exchange a portion of the national 
debt, on which interest is paid by the public, into 
a debt bearing no interest, yet it would be disad- 
vantageous to commerce, as it would preclude the 
merchants from borrowing money, and getting 
their bills discounted, the method in which bank 
paper is partly issued.. 



388 

This, however, is to suppose that money could 
not be borrowed, if the bank did not lend it, and 
that the market rate of interest and profit depends 
on the amounts of the issues of money, and on the 
channel through which it is issued. But as a coun- 
try would have no deficiency of cloth, or wine, or 
any other commodity, if they had the means of 
paying for it, in the same manner neither would 
there be any deficiency of money to be lent, if the 
borrowers offered good security, and were willing 
to pay the market rate of interest for it. 

In another part of this work, I have endea- 
voured to show, that the real value of a commodi- 
ty is regulated, not by the accidental advantages 
which may be enjoyed by some of its producers, 
but by the real difficulties encountered by that pro- 
ducer who is least favoured. It is so with respect to 
the interest for money; it is not regulated by the 
rate at which the bank will lend, whether it be 5, 4, 
or 3 per cent., but by the rate of profits, which can 
be made by the employment of capital, and which 
is totally independent of the quantity, or of the 
value of money. Whether a bank lent one mil- 
lion, ten millions, or a hundred millions, they 
would not permanently alter the market rate of 
interest; they would alter only the value of the 
money which they thus issued. In one case ten 
or twenty times more money might be required 
to carry on the same business, than what might 
be required in the other. The applications to the 
Bank for money, then, depend on the comparison 



389 

between the rate of profits that may be made by 
the employment of it, and the rate at which they 
are wilh'ng to lend it. If they charge less than? 
the market rate of interest, there is no amount of 
money which they might not lend, — if they charge 
more than that rate, none but spendthrifts and 
prodigals would be found to borrow of them. We 
accordingly find, that when the market rate of in- 
terest exceeds the rate of 5 per cent, at which the 
bank uniformly lend, the discount office is besieged 
with applicants for money ; and, on the contrary, 
when the market rate is even temporarily under 5 
per cent, the clerks of that office have no employ- 
ment. 

The reason, then, why, for the last twenty 
years, the bank is said to have given so much aid 
to commerce, by assisting the merchants with 
money, is, because they have, during that whole 
period, lent money below the market rate of in- 
terest ; below that rate at which the merchants 
could have borrowed elsewhere; but I confess, 
that, to me, this seems rather an objection to their 
establishment, than an argument in favour of it. 

What should we say of an establishment which 
should regularly supply half the clothiers with 
their wool under the market price ? Of what be- 
nefit would it be to the community ? It would not 
extend our trade, because the wool would equally 
have been bought, if they jiad charged the market 
price for it. It would not lower the price of cloth 
to the consumer, because the price, as J have said 



before, would be regulated by the cost of its pro- 
duction to those who were the least favoured. Its 
•sole effect, then, would be to swell the profits of a 
part of the clothiers beyond the general and com- 
mon rate of profits. The establishment would be 
deprived of its fair profits, and another part of the 
community would be in the same degree benefited. 
Now this is precisely the effect of our banking es- 
tablishments; a rate of interest is fixed by the law 
below that at which it can be borrowed in the 
market, and at this rate the bank is required to 
lend, or not to lend at all. From the nature of 
their establishment, they have large funds which 
they can only dispose of in this way; and a part 
of the traders of the country are unfairly, and, for 
the country, unprofitably, benefited by being en- 
abled to supply themselves with an instrument of 
trade, at a less charge than those who must be in- 
fluenced only by market price. 

The whole business, which the whole commu- 
nity can carry on, depends on the quantity of ca- 
pital, that is, of its raw material, machinery, food, 
vessels, &:c. employed in production. After a well 
regulated paper money is established, these can 
neither be increased nor diminished by the opera- 
tions of banking. If, then, the state were to issue 
the paper money of the country, although it should 
never discount a bill, or lend one shilling to the 
public, there would be no alteration in'the amount 
of trade ; for we should have the same quantity 
of raw materials, of machinery, food, and ships ; 



391 

and it is probable too, that the same amount of 
money might be lent, not at 5 per cent. indee<}, 
a rate fixed by law, but at 6, 7, or 8 per cent., the 
result of the fair competition in the market between 
the lenders and the borrowers. 

Adam Smith speaks of the advantages derived 
by merchants from the superiority of the Scotch 
mode of affording accommodation to trade, over 
the English mode, by means of cash accounts. 
These cash accounts are credits given by the 
Scotch banker to his customers, in addition to the 
bills which he discounts for them; but as the 
banker, in proportion as he advances money, and 
sends it into circulation in one way, is debarred 
from issuing so much in the other, it is difficult to 
perceive in what the advantage consists. If the 
v.'hole circulation will bear only one million of paper, 
one million only will be circulated ; and it can be 
of no real importance either to the banker or mer- 
chant, whether the whole be issued in discounting 
bills, or a part be so issued, and the remainder be 
issued by means of these cash accounts. 

It may perhaps be necessary to say a few words 
on the subject of the two metals, gold and silver, 
which are employed in currency, particularly as 
this question appears to perplex, in many people's 
minds, the plain and simple principles of currency. 
" In England," says Dr. Smith, "gold was not con- 
sidered as a legal tender Tor a long time after it 
was coined into money. The proportion between 
the values of gold and silver money was not fixed by 



392 

any public law or proclamation ; but was left to 
be settled by the market. If a debtor offered pay- 
ment in gold, the creditor might either reject such 
payment altogether, or accept of it at such a va- 
luation of the gold, as he and his debtor could agree 
Upon." 

In this state of things it is evident that a guinea 
might^ometimes pass for 22s. or more, and some- 
times for I85. or less, depending entirely on the 
alteration in the relative market value of gold and 
silver. All the variations too in the value of gold, 
as well as in the value of silver, would be rated in 
the gold coin, — it would appear as if silver was" 
invariable, and that gold only was subject to rise 
or fall. Thus, although a guinea passed for 22s, 
instead of I8s. gold might not have varied in value, 
the variation might have been wholly confined to 
the silver, and therefore 22s. might have been of 
no more value than 18^. were before. And on the 
contrary, the whole variation might have been in 
the gold: a guinea, which was worth 18s. might 
have risen to the value of 22^. 

If, now, we suppose this silver currency to be 
debased by clipping, and also increased in quan- 
tity, a guinea might pass for 30^. ; for the silver in 
30^, of such debased money might be of no more 
value than the gold in one guinea. By restoring 
the silver currency to its mint value, silver money 
would rise ; but it would appear as if gold fell, for 
a guinea would probably be of no more value than 
21 of such good shillings. 



393 

If now gold be also made a legal tender, and 
every debtor be at liberty to discharge a debt by 
the payment of 420 shillings, or twenty guineas, 
for every 21/. that he owes, he will pay in one or 
the other, according as he can most cheaply dis^ 
charge his debt. If, with five quarters of wheat he 
can procure as much gold bullion as the mint will 
coin into twenty guineas, and, for the same wheat, 
as much silver bullion as the mint will coin for him 
into 430 shillings, he will prefer paying in silver, 
because he would be a gainer of ten shillings, by 
so paying his debt. But if, on the contrary, he 
could obtain, with this wheat, as much gold 
as would be coined into twenty guineas and a 
half, and as much silver only as would coin into 
420 shillings, he would naturally prefer paying 
his debt in gold. If the quantity of gold which 
he could procure could be coined only into twenty 
guineas, and the quantity of silver into 420 shil- 
lings, it would be a matter of perfect indifference 
to him in which money, silver, or gold, it was that 
he paid his debt. It is not, then, a matter of chance ; 
it is not because gold is better fitted for carrying 
on the circulation of a rich country, that gold is 
ever preferred for the purpose of paying debts, 
but siu}ply because it is the interest of the debtor- 
so to pay them. 

During a long period previous to 1797, the year 
of the restriction on the bank payments in coin, 
gold was so cheap, compared with silver, that it 
50 



394 

suited the bank of England, and all other debtors, 
to purchase gold in the market, and not silver, for 
the purpose of carrying it to the mint to be coined, 
as thej could, in that coined metal, more cheaply 
discharge their debts. The silver currency was, 
during a great part of this period, very much de- 
based, but it existed in a degree of scarcity, and, 
therefore, on the principle vj^hich I have before ex- 
plained, it never sunk in its current value. Though 
so debased, it was still the interest of debtors to 
pay in the gold coin. If, indeed, the quantity of 
this debased silver coin had been enormously 
great, or if the mint had issued such debased pieces, 
it might have been the interest of debtors to pay 
in this debased money ; but its quantity was limit- 
ed and it sustained its value, and therefore gold 
was, in practice, the real standard of currency. 

That it was so, is no where denied; but it has 
been contended that it was made so by the law 
which declared that silver should not be a legal 
tender for any debt exceeding 25/. unless by 
weight, according to the mint standard. 

But this law did not prevent any debtor from 
paying any debt, however large its amount, in 
silver currency fresh from the mintj that the 
debtor did not pay in this metal, was not a matter 
of chance, nor a matter of compulsion, but wholly 
the effect of choice; it did not suit him to take 
silver to the mint, it did suit him to take gold thi- 
ther. It is probable that if the quantity of this de- 
based silver in circulation had been enormously 



395 

great, and also a legal tender, that a guinea woidd 
have been again worth thirty shillings; but it 
would have been the debased shilling that would 
have fallen in value, and not the guinea that had 
risen. 

It appears, then, that whilst each of the two 
metals was equally a legal tender for debts of any 
amount, we were subject to a constant change in 
the principal standard measure of value. It would 
sometimes be golld, sometimes silver, depending 
entirely on the variations in the relative value of 
the two metals, and at such times the metal, which 
was not the standard, would be melted, and with- 
drawn from circulation, as its value would be 
greater in bullion than in coin. This was an in- 
convenience which it was highly desirable should 
be remedied, but so slow is the progress of im- 
provement, that although it had been unanswer- 
ably demonstrated by Mr. Locke, and had been 
noticed by all writers on the subject of money since 
his day, a better system was never adopted till the 
la&t session of parliament, when it was enacted that 
gold only should be a legal tender tor any sum 
exceeding forty-two shillings. 

Dr. Smith does not appear to have been quite 
aware of the effect of employing two metals as 
currency, and both a legal tender for debts of any 
amount; for he says that "in reality, during the 
continuance of any one regulated proportion be- 
tween the respective values of the different metals 
in coin, the value of theinost precious metal regu- 



396 

lates the value of the whole coin." Because gold 
was, in his day, the medium in which it suited 
debtors to pay their debts, he thought that it had 
some Inherent quality by which it did then, and 
always would, regulate the value of silver coin. 

On the reformation of the gold coin in 1774, a 
new guinea, fresh from the mint, would exchange 
for only twenty-one debased shillings ; but in the 
reign of king William, when the silver coin w^as in 
precisely the same condition, a guinea, also new 
and fresh from the mint, would exchange for thirty 
shillings. On this Mr. Buchanan observes, '• here, 
then, is a most singular fact, of which the common 
theories of currency offer no account; the guinea 
exchanging at one time for thirty shillings, its in- 
trinsic worth in a debased silver currency, and 
afterwards the same guinea exchanged for only 
twenty-one of those debased shillings. It is clear 
that some great change must have intervened in 
tho state of the currency between these two dif- 
ferent periods, of which Dr. Smith's hypothesis 
offers no explanation." 

It appears to me, that the diflSculty may be very 
simply solved, by referring this diflerent slate of 
the value of the guinea at the two periods men- 
tioned, to the different (juantitics of debased silver 
currency in circulation. In king William's reign 
gold was not a legal tender, it passed only at a 
conventional value. All the large payments were 
probably made in silver, particularly as paper cur- 
rency, and the operalioniB of banking, were then 



397 

little understood. The quantity of this debased 
silver money exceeded the quantity of silver 
money, which would have been maintained in cir- 
culation, if nothing but undebased money had been 
in use; and, consequently it was depreciated a& 
well as debased. But in the succeeding period, 
when gold was a legal tender, when bank notes 
also were used in effecting payments, the quantity 
of debased silver money did not exceed the quan- 
tity of silver coin fresh from the mint, which would 
have circulated if there had been no debased sil- 
ver money, hence, though the money was de- 
based, it was not depreciated. Mr. Buchanan's 
explanation is somewhat diflferent; he thinks that 
a subsidiary currency is not hable to depreciation, 
but that the main currency is. In king William's 
reign, silver was the main currency, and hence 
was hable to depreciation. In 1774, it was a sub- 
sidiary currency, and therefore maintained its 
value. Depreciation, however, does not depend 
on a currency being the subsidiary or the main 
currency, it depends wholly on its being in excess 
of quantity. 

To a moderate seignorage on the coinage of 
money there cannot be much objection, particu- 
larly on that currency which is to effect the 
smaller payments. Money is generally enhanced 
in value to the full amount of the seignorage, and, 
therefore, it is a tax which in no way affects those 
who pay it, while the quantity of money is not in 
excess. It must, however, be remarked, that in a 



398 

-country where a paper currency is established, 
although the issuers of such paper should be lia- 
ble to pay it in specie on the demand of the 
holder, still, both their notes and the coin might 
be depreciated to the full amount of the seignor- 
age on that coin, which is alone the legal tender, 
before the check, which limits the circulation of 
paper, would operate. If the seignorage on gold 
coin were 5 per cent., for instance, the currency, 
by an abundant issue of bank notes, might be 
really depreciated 5 per cent, before it would be 
the interest of the holders to demand coin for the 
purpose of melting it into bullion ; a depreciation 
to which we should never be exposed, if either 
there was no seignorage on the gold coin, or, 
if a seignorage were allowed, the holders of bank 
notes might demand bullion, and not coin, in ex- 
change for them, at the mint price of 3/. 175, lO^d. 
Unless then the bank should be obliged to pay 
their notes in bullion or coin, at the will of the 
holder, the late law which allows a seignorage of 
6 per cent , or four pence per oz., on the silver 
coin, but which directs that gold shall be coined 
by the mint without any charge whatever, is per- 
haps the mosit proper, as it will more effectually 
prevent any unnecessary variation of the cur- 
rency* 

* M. Say recommends that the seignorage should vary ac- 
cording to the quantity of business that the mint might be 
called upon to perform. 



399 



" Government should not coin the bullion of indlviduale 
except on payment, not only of the expenses, but also of the 
profits of coining. This profit might be carried to a consi- 
derable height, in consequence of the exclusive privilege of 
coining ; but it must vary according to the circumstances of 
the mint, and the quantity required for circulation/' Vol. i. 
p. 380. 

Such a regulation would be extremely pernicious, and 
would expose us to considerable and unnecessary variation 
in the bullion value of the currencv. 



CHAPTER XXVI, 

On the comparative value of gold, corn, and labottr, 
in rich and in poor countries. 

^"^Xjtold and silver, like all other commodities," 
says Adam Smith, ** naturally seek the market 
where the best price is given for them ; and the 
best price is commonly given for every thing in 
the country which can best afford it. Labour, it 
must be remembered, is the ultimate price which 
is paid for every thing; and in countries where 
labour is equally well rewarded, the money price 
of labour will be in proportion to that of the sub- 
sistence of the labourer. But gold and silver will 
naturally exchange for a greater quantity of sub- 
sistence in a rich than in a poor country ; in a 
country which abounds with subsistence, than in 
one which is but indifferently supplied with it." - 

But corn is a commodity, as well as gold, silver^ 
and other things ; if all commodities, therefore', 
have a high exchangeable value in a rich country, 
corn must not be excepted; and hence we might 
correctly say, that corn exchanged for a great 
deal of money, because it was dear, and that 
money too exchanged for a great deal of corn, be- 
cause that also was dear ; which is to assert that 
corn is dear and cheap at the same time. No point 
in political economy can be better established, than 

that a rich country is prevented from increasing in 
51 



402 

population, in the same ratio as a poor country, by 
the progressive difficulty of providing food. That 
difficulty must necessarily raise the relative price 
of food, and give encouragement to its importation. 
Hovv^, then, can money, or gold and silver, ex- 
change for more corn in rich, than in poor coun- 
tries ? It is only in rich countries, w^here corn is 
dear, that landholders induce the legislature to 
.prohibit the importation of corn Who ever heard 
of a lavr to prevent the importation of raw produce 
in America or Poland ? — Nature has effectually 
precluded its importation by the comparative fa- 
cility of its production in those countries. 

How then can it be true, that "if you except 
corn, and such other vegetables as are raised alto- 
gether by human industry, all other sorts of rude 
produce — cattle, poultry, game of all kinds, the 
useful fossils and minerals of the earth, &c. natu- 
rally grow dearer as the society advances." Why 
should corn and vegetables alone be excepted ? 
Dr. Smith's error throughout his whole work, lies 
in supposing that the value of corn is constant; 
that though the value of all other things may, the 
value of corn never can be raised. Corn, accord- 
ing to him, is always of the same value, because 
it will always feed the same number of people. In 
the same manner it might be said, that cloth is 
always of the same value, because it will always 
make the same number of coats. What can 
value have to do with the power of feeding and 
clothing.'* 



M3 

Corn, like every other commodity, has in every^ 
country its natural price, viz. that price which is 
necessary to its production, and without which it 
could not be cultivated: it is this price which gov- 
erns its market price, and which determines the ex- 
pediency of exporting it to foreign countries. If the 
importation of corn were prohibited in England, 
its natural price might rise to 6/. per quarter in 
England, whilst it was only at half that price in 
France- If at this time, the prohibition of importa- 
tion were removed, corn would fall in the English 
market, not to a price between 6/. and 3/., but 
ultimately and permanently to the natural price 
of France, the price at which it could be furnished 
to the English market, and afford the usual and 
ordinary profits of stock in France; and it would 
remain at this price, whether England consumed 
a hundred thousand or a million of quarters. If 
the demand of England were for the latter quan- 
tity, it is probable that, owing to the necessity un- 
der which France would be, of having recourse to 
land of a worse quality, to furnish this large sup- 
ply, the natural price would rise in France ,• and 
this would of course affect also the price of corn 
in England. All that I contend for is, that it is the 
natural price of commodities in the exporting 
country, which ultimately regulates the prices at 
which they shall be sold, if they are not the objects 
of monopoly, in the importing country. 

But Dr. Smith, who has so ably supported the 
•doctrine of the natural price of commodities ulti- 



404 

mately regulating their market price, has supposed 
a case in which he thinks that the market price 
would not be regulated either by the natural price 
of the exporting or of the importing country. — - 
" Diminish the real opulence either of Holland or 
the territory of Genoa," he says, " while the num- 
ber of their inhabitants remains the same ; diminish 
their power of supplying themselves from distant 
countries, and the price of corn, instead of sinking 
with that diminution in the quantity of their silver 
which must necessarily accompany this declension, 
either as its cause or as its effect, will rise to the 
price of a famine." 

To me it appears, that the very reverse would 
take place: the diminished power of the Dutch or 
Genoese to purchase generally, might depress the 
price of corn for a time below its natural price in 
the country from which it was exported, as well 
as in the countries in which it was imported, but it 
is quite impossible that it could ever raise it above 
that price. It is only by increasing the opulence 
of the Dutch or Genoese, that you could increase 
the demand, and raise the price of corn above its 
former price; and that would take place only for 
a very limited time, unless new difficulties should 
arise in obtaining the supply. 

Dr. Smith further observes on this subject : 
" When we are in want of necessaries, we must 
part with all superfluities, of which the value, as it 
rises in times of opulence and prosperity, so it sinks 
in times of poverty and distress." This is undoubt- 



405 

ediy true ; but he continues, "it is otherwise with 
necessaries. Their real price, the quantity of 
labour which they can purchase or command, rises 
in times of poverty and distress, and sinks in times 
of opulence and prot;perity, which are always 
times of great abundance, for they could not 
otherwise be times of* opulence and prosperity. 
Corn is a necessary, silver is only a superfluity/' 

Two propositions are here advanced, which 
have no connexion with each other; one, that un- 
der the circumstances supposed, corn would com- 
mand more labour, which is not disputed; the 
other, that corn would sell at a higher money 
price, that it would exchange for more silver ; this 
'I contend to be erroneous. It might be true, if 
corn, were at the same time scarce, if the usual 
supply had not been furnished. But in this case 
it is abundant, it is not pretended that a less quan- 
tity than usual is imported, or that more is required. 
To purchase corn, the Dutch or Genoese want 
money, and to obtain this money they are obliged 
to sell their superfluities. It is the market value 
and price of these superfluities which falls, and 
money appears to rise. as compared with them. — - 
But this will not tend to increase the demand for 
corn, nor to lower the value of money, the only 
two causes which can raise the price of corn. 
Money, from a want of credit, and from other 
causes, may be in great demand, and consequentlv 
dear, comparatively with corn; but on no just 
principle can it be maintained,, that under such 



406 

circumstances money would be cheap, and, there- 
fore, that the price of corn would rise. 

When we speak of the high or low value of 
gold, silver, or any other commodity in different 
countries, we should always mention some medium 
in which we are estimating them, or no idea can 
be attached to the proposition. Thus, when gold 
is said to be dearer in England than in Spain, if 
no commodity is mentioned, what notion does the 
assertion convey ? If corn, olives, oil, wine, and 
wool, be at a cheaper price in Spain than in Eng- 
land ; estimated in those commodities, gold is 
dearer in Spain. If, again, hardware, sugar, cloth, 
&c. be at a lower price in England than in Spain, 
then, estimated in those commodities, gold is 
dearer in England. Thus gold appears dearer or 
cheaper in Spain, as thf fancy of the observer may 
fix on the medium by which he estimates its value. 
Adam Smith, having stamped corn and labour as 
an universal measure of value, would naturally 
estimate the comparative value of gold by the 
quantity of those two objects for which it would 
exchange: and, accordingly, when he speaks of 
the comparative value of gold in two countries, I 
understand him to mean its value estimated in corn 
and labour. 

But we have seen, that, estimated in corn, gold 
may be of very different value in two countries. [ 
have endeavoured to show that it will be low in 
rich countries, and high in poor countries. Adam 
Smith is of a different opinion: he thinks that the 



407 

value of gold, estimated in corn, is highest in rich 
countries But without further examining which 
of these opinions is correct, either of them is suffi- 
cient to show, that gold will not necessarily be 
lower in those countries which are in possession of 
the mines, though this is a proposition maintained 
by Adam Smith. Suppose England to be posses- 
sed of the mines, and Adam Smith's opinion, that 
gold is of the greatest value in rich countries, to 
be correct : although gold would naturally flow 
from England to all other countries in exchange 
for their goods, it would not follow that gold was 
necessarily lower in England, as compared with 
corn and labour, than in those countries. In ano- 
ther place, however, Adam Smith speaks of the 
precious metals being necessarily lower in Spain 
and Portugal, than in other parts of Europe, be- 
cause those countries happen to be almost the ex- 
clusive possessors of the mines which produce them. 
" Poland, where the feudal system still continues 
to take place, is, at this day, as beggarly a coun- 
try as it was before the discovery of America. The 
money price of com., however, has risen; the real 

VALUE OP THE PRECIOUS METALS HAS FALLEN in Po- 
land, in the same manner as in other parts of 
Europe. Their quantity, therefore, must have in- 
creased there as in other places, and nearly in the 
same proportion to the oimual produce of the land and 
labour. This increase of the quantity of those 
metals, however, has not, it seems, increased that 
annual produce, has neither improved the mami- 



408 

lactures and agriculture of the country, nor mended 
the circumstances of its inhabitants. Spain and 
Portugal, the countries which possess the mines, 
are, after Poland, perhaps, the two most beggarly 
countries in Europe. The value of the precious 
metals, however, rmist be lower in Spain and Por- 
tugal than in any other parts of Europe, loaded, 
not only with a freight and insurance, but with 
the expense of smuggling, their exportation being 
either prohibited, or subjected to a duty. In pro- 
'portion to the annual produce of the land and labour^ 
therefore^ their quantity must be greater in those 
countries than in any other part of Europe : those 
countries, however, are poorer than the greater 
part of Europe. Though the feudal system has 
been abolished in Spain and Portugal, it has not 
been succeeded by a much better." 

Dr. Smith's argument appears to me to be this : 
— Gold, when estimated in corn, is cheaper in 
Spain than in . other countries, and the proof of 
this is, not that corn is given by other countries io 
Spain for gold, but that cloth, sugar, hardware, 
are by those countries given in exchange for that 
metal. 



CHAPTER XXVIi. 

Taxes paid by tht Producer, 

M. Say greatly magnifies the inconveniences 
which result if a tax on a manufactured commodity 
is levied at an early, rather than at a late period 
of its manufacture. The manufacturers, he ob= 
serves, through whose hands the commodity may 
successively pass, must employ greater funds in 
consequence of having to advance the tax, which 
is often attended with considerable difficulty to a 
manufacturer of very limited capital and credit. 
To this observation no objection can be made. 

Another inconvenience on which he dwells is, 
that in consequence of the advance of the tax, thp 
profits on the advance also must be charged to the 
consumer, and that this additional tax is one from 
which the treasury derives no advantage. 

In this latter objection I cannot agree with M. 
Say. The state, we will suppose, wants to rai^e 
immediately 1000/. and levies it on a manufacturer, 
who will not, for a twelve month, be able to charge 
it to the consumer on his finished commodity. In 
consequence of such delay, he is obliged to charge 
for hid commodity an additional price, not only of 
3000/. the amount of the tax, but probably of 1 100/., 
300/. being for interest on the 1000/. advanced. 
But in return for this additional 100/. paid by the 
b2 



410 

consumer, he has a real benefit, inasmuch as his 
payment of the tax which government required 
immediatelj, and which he must finally pay, has 
been postponed for a year ; an opportunity, there- 
fore, has been afforded to him of lending to the 
manufacturer, who had occasion for it, the lOOOZi, 
at 10 per cent, or at any other rale of interest which 
mio"ht be agreed upon. Eleven hundred pounds, 
payable at the end of one year, when money is at 
10 per cent interest, is of no more value than 
1000/. to be paid immediately. If government de- 
layed receiving the tax for one year till the manu- 
facture of the commodity was completed, it would, 
perhaps, be obliged to issue an exchequer biH 
bearing interest, and it would pay as much for in- 
terest as the consumer would save in price, except- 
ing, indeed, that portion of the price which the 
manufacturer might be enabled, in consequence of 
the tax, to add to his own real gains. If, for the 
interest of the exchequer bill, government would 
have paid 5 per cent., a tax of 50/. is saved by not 
issuing it. If the manufacturer borrowed the ad- 
ditional capital at 5 per cent., and charged the 
consumer 10 percent., he also will have gained 5 
per cent, on his advance over and above his usual 
profits, so that the manufacturer and government 
together gain, or save, precisely the sum which the 
consumer pays. 

M. Siraonde, in his excellent work, Dc la Ri- 
chesse Conunerciale, following the same linfe of ar- 
gument as M. Say, has calculated that a tax of. 



411 

4000 francs, paid originallj by a manufacturer, 
whose profits Avere at the moderate rate of 10 per 
cent., would, if the commodity manufactured only 
passed through the hands of five different persons, 
be raised to the consumer to the sum of 6734 
francs. This calculation proceeds on the suppo- 
sition, tliat he who first advanced the tax, would 
receive from the next manufacturer 4400 francs, 
and he again from the next, 4840 francs ; so that 
at each step 10 per cent, on its value would be 
added to it. This is to suppose that the value of 
the tax would be accumulating at compound in- 
terest, not at the rate of 10 per cent, per annum, 
but at an absolute rate of 10 per cent., at every 
step of its progress. This opinion of M. de Si- 
monde would be correct if five years elapsed be- 
tween the first advance of the tax, and the sale of 
the taxed commodity to the consumer; but if one 
year only elapsed, a remuneration of 400 francs, 
instead of 273-4, would give a profit at the rate of 
ten per cent, per annum, to all who had contributed 
to tlie advance of the tax, whether the commodity 
had passed through the bands of five manufactu- 
rers or fifty. 



CHAPTER XXVIII. 

On the Influence of Demand and Supply on Prices. 

It is the cost of production which must ultimate^ 
Iv regulate the price of commodities, and not, as 
has been often said, the proportion between the 
supply :and demand : the proportion between sup- 
ply and demand may, indeed, for a time, affect the 
market value of a commodity, until it is supplied 
in greater or less abundance, according as the de- 
mand may have increased or diminished ; but this 
effect will be only of temporary duration. 

Diminish the cost of production of hats, and 
their price will ultimately fall to their new natural 
price, although the demand should be doubled, 
trebled, or quadrupled. Diminish the cost of sub- 
sistence of men, by diminishing the natural price 
of the food and clothing, by which life is sustained, 
and wages will ultimately fall, notwithstanding 
that the demand for labourers may very greatly 
increase. 

The opinion that the price of commodities de~ 
pends solely on the proportion of supply to demand, 
or demand to supply, has become almost an axiom 
in political economy, and has been the source of 
much error in that science. It is this opinion 
which has made Mr. Buchanan maintain that 
waffes are not influenced by ^ rise or fall in the 



414 

price of provisions, but solely by the demand and 
supply of labour ; and that a tax on the wages of 
labour would not raise wages, because it would 
not alter the proportion of the demand of labour- 
ers to the supply. 

The demand for a commodity cannot be said to 
increase, if no additional quantity of it be pur- 
chased or consumed; and yet, under such circum- 
stances, its money value may rise. Thus, if the 
value of money were to fall, the price of every 
commodity would rise, for each of the competitors 
would be* willing to spend more money than be- 
fore on its purchase; but though its price rose 10 
or 20 per cent, if no more were bought than be- 
fore, it would not, I apprehend, be admissible to 
say, that the variation in the price of the commo- 
dity was caused by the increased demand for it. 
Its natural price, its money cost of production, 
would be really altered by the altered value of 
money; and, without any increase of demand, the 
price of the commodity would be naturally adjust- 
ed to that new value, 

" We have seen," says M. Say, " that the cost 
of production determines the lowest price to which 
things can fall : the price below which they cannot 
remain for any length of time, because production 
would then be either entirely stopped or dimin- 
ished. Vol. ii. p. 26. 

He afterwards says that the demand for gold 
having increased in a still greater proportion than 
the supply, since the discovery of the mines, " its 



415 

price in goods, instead of falling in the proportron 
of ten to. one, fell only in the proportion o{ 
four to one;" that is to sav, instead of falling in 
proportion as its natural price bad *fallen, fell in 
proportion as the supply exceeded the demand.* 
*' The value of every cortwiodily rises always in a di^ 
rect ratio to the demand, and in anjnverse ratio to 
the supply.'''' 

The same opinion is expressed by the earl of 
Lauderdale. 

" With respect to the variations in value,, of 
which every thing valuable is susceptible, if we 
could for a moment suppose that any substance 
possessed in^trinsic and fixed value, so as to render 
an assumed quantity of it constantly, under all cir- 
cumstances, of an equal value, then the degree of 
value of all things, ascertained by such a fixed 
standard, would vary accordbg to the proportion 
betwixt the quantity of them, and the demand for 
them, and every commodity would of course be 
subject to a variation in its value, from four differ- 
ent circumstances. 

* If, with the quantity of gold and silver which actualTy 
exists, these metals only served for the manufacture of uten- 
sils and ornaments, they would be abundant, and would be 
much cheaper than they are at present; in other words, in 
exchanging them for any other species of goods, we should 
be obliged to give proportionally a greater quantity of them. 
But as a large quantity of these metals is used for money, 
and as this portion is used for no other purpose, there re- 
laains less to be employed in furniture and jewellery ; now 
this scarcity adds to their value. — Say, vol. i. p. 316. See 
also note to p. 78. 



416 

1. "It would be subject to an mcrease of its 
value, from a diminution of its quantity, 

2. " To a diminution of its value, from an aug-* 
mentation of its quantity. 

3. " It might suffer an augmentation in its value, 
from the circumstance of an increased demand. 

4. " Its value, might be diminished by a failur6 
of demand. 

" As it will, however, clearly appear that no 
commodity can possess fixed and intrinsic value, 
go as to qualify it for a measure of the value of 
other commodities, mankind are induced to select, 
as a practical measure of value, that which ap- 
pears the least liable to any of these four sources 
of variations, which are the sole causes of alteration 
of value. 

'» When in common language, therefore, we ex- 
press the value of any commodity, it may vary at 
one period from what it is at another, in conse* 
quence of eight different contingencies. 

1.' " From the four circumstances above stated) 
HI relation to the commodity of which we mean to 
express the value. 

2. " From the same four circumstances, in re- 
lation to the commodity we have adopted as a 
measure of value."* 

This is true of monopolized commodities^ and 
indeed of the market price of all other commodi* 

* An inquiry into the nature &nd origin of public wealth, 
nage 13, . 



417 

ties for a limited period. If the demand for hats 
should be doubled, the price would immediately 
rise, but that rise would be onlj temporary, unless 
the cost of production of hats, or their natural 
price, were raised* If the natural price of bread 
should fall 50 per cent, from some great discovery 
in the science of agriculture, the demand would 
not greatly increase, for no man would desire 
more than would satisfy his wants, and as the de- 
mand would not increase, neither would the sup- 
ply; for a commodity is not supplied merely 
because it can be produced, but because there is a 
demand for it. Here, then, we have a case where 
the supply and demand have scarcely varied, or if 
they have increased, they have increased in the 
same proportion ; and yet the price of bread will 
have fallen 50 per cent., at a time too, when the 
value of money had continued invariable. 

Commodities which are monopolized, either by 
an individual, or by a company, vary according to 
the law which Lord Lauderdale has laid down : 
they fall in proportion as the sellers augment their 
quantity, and rise in proportion to the eagerness of 
the buyers to purchase them ; their price has no 
necessary connexion with their natural value; but 
the prices . of commodities, which are subject to 
competition, and whose quantity may be increased 
in any moderate degree, will ultimately depend, 
not on the state of demand and s^upply, but on the 
increased or diminished cost of their production. 
53 



CHAPTER XXIX. 

Mr. Malthus's opinions on Rent. 

Although the nature of rent has, in the former 
pages of this work, been treated on at some length, 
yet I consider myself bound to notice some opi- 
nions on the subject, which appear to me erro- 
neous, and which are the more important, as they 
are found in the writings of one to whom, of all 
men of the present day, some branches of econo- 
mical science are the most indebted. Of Mr, 
Malthus's Essay on Population, I am happy in the 
opportunity here afforded me of expressing my ad- 
miration. The assaults of the opponents of this 
great work have only served to prove its strength ; 
and I am persuaded that its just reputation will 
spread with the cultivation of that science of which 
it is so eminent an ornament. Mr. Malthus too, 
has satisfactorily explained the principles of rent, 
and showed that it rises or falls in proportion to 
the relative advantages, either of fertility or situ- 
ation of the diflferent lands in cultivation, and has 
thereby thrown much light on many difficult points 
connected with the subject of rent, which were 
before either unknown, or very imperfectly under- 
stood ; yet he appears to me to have fallen into 
some errors, which his authority makes it the more 
necessary, whilst his characteristic candour ren- 
ders it less unpleasing, to notice. One of these 



420 

errors lies in supposing rent to be a clear gain and 
a new creation of riches. 

I do not assent to all the opinions of Mr. Bu- 
chanan concerning rent; but with those expressed 
in the following passage, quoted from his work by 
Mr. Malthus, I fully agree ; and, therefore, I must 
dissent from Mr. Malthus's condiraenton them. 
, " In this view it (rent) can form no general ad- 
dition to the stock of the coramunitj, as the neat 
surplus in question is nothing more than a revenue 
transferred from one class to another ; and from 
the mere circumstance of its thus changing hands, 
it is clear that no fund can arise, out of which to 
pay taxes. The revenue which pays for the pro- 
duce of the land, exists already in the hands of 
those who purchase that produce ; and, if the 
price of subsistence were lower, it would still re- 
main in their hands, where it would be just as 
available for taxation as when, by a higher price, 
it is transferred to the landed proprietor." 

After various observations on the difference be- 
tween raw produce and manufactured commodi- 
ties, Mr. Malthus asks, " Is it possible, then, with 
M. de SIsmondi, to regard rent as the sole produce 
of labour, which has a value purely nominal, and 
the mere result of that augmentation of price which 
a seller obtains in consequence of a peculiar privi- 
lege ; or, with Mr. Buchanan, to consider it as no 
addition to the national wealth, but merely a trans- 
fer of value, advantageous only to the landlords, 
and proportionably injurious to the consumers .^"* 

* An inquiry into the nature and progress of rent, p. 15. 



421 

I have already expressed my opinion on this 
subject in treating of rent, and have now only fur- 
ther to add, that rent is a creation of value, as I 
understand that word, but not a creation of wealth. 
If the pride of corn, from the difficulty of pro- 
ducing any portion of it, should rise from 4/. to 5/. 
per quarter, a million of quarters will be of the 
value of 5,000,000/. instead of 4,000,000/., and as 
this corn will exchange not only for more money, 
but for more ot every other commodity, the pos- 
sessors will have a greater amount of value ; and 
as no one else will in consequetice have a less, the 
society altogether will be possessed of greater 
value, and in that sense rent is a creation of value. 
But this value is so far nominal that it adds no- 
thing to the wealth, that is to say, to the necessaries, 
conveniences, and enjoyments of the society. We 
should have precisely the same quantity, and no 
more of commodities, and the same million quar- 
ters of corn as before ; but the effect of its being 
rated at 5/. per quarter, instead of 4/. would be to 
transfer a portion of the value of the corn and 
commodities from their former possessors to the 
landlords. Rent, then, is a creation of value, but 
not a creation of wealth; it adds nothing to the 
resources of a country, it does not enable it to 
maintain fleets and armies; for the country would 
have a greater disposable fund if its land were of 
a better quality, and it could employ the same 
capital without generating a rent. 
. In another part of Mr. Malthus's " Inquiry" he 



422 

observes, "that the immediate cause of rent is ob- 
viously the excess of price above the cost of pro- 
duction at wiiich raw produce sells in the market," 
and in another place he says, " that the causes of 
the high price of raw produce may be stated to 
be three : — 

" First, and mainly, that quality of the earth, 
by which it can be made to yield a greater por- 
tion of the necessaries of life than is required for 
the maintenance of the persons employed on the 
land. 

" 2dly. That quality peculiar to the necessaries 
of life of being able to create their own demand,- 
or to raise up a number of demanders in propor- 
tion to the quantity of necessaries produced. 

" And 3dly. The comparative scarcity of the 
most fertile land." In speaking of the high price 
of corn, Mr. Malthus evidently does not mean the 
price per quarter or per bushel, but rather the ex- 
cess of price for which the whole produce will 
sell, above the cost of its production, including 
always in the term "cost of production," profits 
as well as wages. One hundred and fifty quar- 
ters of corn at 3/. IO5. per quarter, would yield a 
larger rent to the landlord than 100 quarters at 4/. 
provided the cost of production were in both cases 
the same. 

High price, if the expression be used in this 
sense, cannot then be called a cause of rent ; it 
cannot be said " that the immediate cause of rent 
is obviously the excess of price above the cost of 



423 

production, at which raw produce sells in the mar- 
ket," for that excess is itself rent. Rent, Mr. Mai- 
thus has defined to be " that portion of the value 
of the whole produce which remains tothe owner 
of the land, after all the outgoings belonging to 
its cultivation, of whatever kind, have been paid, 
including the profits of the capital employed, esti- 
mated according to the usual and ordinary rate of 
the profits of agricultural stock at the time being." 
Now whatever sum this excess may sell for, is 
money rent; it is what Mr. Mai thus means by " the 
excess of price above the cost of production at 
which raw produce sells in the markets,*" and 
therefore in an inq-uiry into the causes which may 
elevate the price of raw produce, compared with 
the cost of production, we are inquiring into the 
causes which may elevate rent. 

In reference to the first cause of the rise of rent, 
Mr. Malthushas the following observations; "We 
still want to know why the consumption and sup- 
ply are such as to make the price so greatly ex- 
ceed the cost of production, and the main cause 
is evidently ihe fertilily of the earth in producing 
the necessaries of life. Diminish this plenty, di- 
minish the fertility of the soil, and the excess will 
diminish; diminish it still further, and it will dis- 
appear." True, the excess of necessaries will 
diminish and disappear, but tlmt is not the ques- 
tion. The question is, whether the excess of their 
price above the cost of their production will di- 
minish and disappear, for it is on this, that money 



424 

rent depends. Is Mr. Malthus warranted in his 
inference, that because the excess of quantity will 
diminish and disappear, therefore " the cause of 
the high price of the necessaries of life above the 
cost of production is to be found in their abun- 
dance, rather than in their scarcity ; and is not 
only essentially different from the high price occa- 
sioned by artificial monopolies, but from the high 
price of those peculiar products of the earth, not 
connected with food, which may be called natural 
and necessary monopolies ?" 

Are there no circumstances under which the 
fertility of the land, and the plenty of its produce 
may be diminished, without occasioning a dimin- 
ished excess of its price above the cost of produc- 
tion, that rs to say, a diminished rent ? If there 
are, Mr. Malthus's proposition is much too uni- 
versal; for he appears to me to state it as a gene- 
ral principle, true under all circumstances, that 
rent will rise with the increased fertility of the 
land, and will fall with its diminished fertility. 

Mr. Malthus would undoubtedly be right, if in 
proportion as the laud yielded abundantly, a greater 
share of the whole produce were paid to the land- 
lord ; but the contrary is the fact : when no other 
but the most fertile land is in cultivation, the land- 
lord has the smallest share of the whole produce, 
as well as the smallest value, and it is only when 
inferior lands are required to feed an augmenting 
population, that both the landlord's share of the 
whole produce, and the value he receives progres- 
sively increase. 



425 

- Suppose that the demand is for a million of 
quarters of corn, and that they are the produce of 
the land actually in cultfvation. Now, suppose 
the fertility of all the land to be so diminished, that 
the very same lands will yield only 900,000 quar- 
ters. The demand being for a million of quarters, 
the price of corn would rise, and recourse must 
necessarily be had to land of an inferior quality 
sooner than if the superior land had continued to 
produce a million of quarters. But it is ihis neces- 
sity of taking inferior land into cultivation which 
is the cause of the rise of rent. Rent, it must be 
remembered, is not in proportion to the absolute 
fertility of the land in cultivation, but in proportion 
to its relative fertility. Whatever cause may drive 
capital to inferior land, must elevate rent; the 
cause of rent being, as stated by Mr. Malthus, in 
his third proposition, " the comparative scarcity of 
the most fertile land." The price of corn will na- 
turally rise with the difficulty of producing the 
last portions of it; but as the cost of production 
will not increase, as wages and profits taken to- 
gether will continue always of the same value,* 
^t is evident that the excess of price above the cost 
of production, or, in other words, rent, must rise 
with diminished fertility of the land, unless it is 

* S6e page 90, where I have endeavoured to show, that 
whatever facility or diflBculty there may be in the produc- 
tion of corn, wages and profits together will be of the same 
value. When wages rise, it is always at the expense of 
profits, and when they fall, profits always rise. 
54 



426 

Counteracted bj a great reduction of capital, po- 
pulation, and demand. It does not appear, then, 
that Mr. Malthus's preposition is correct: rent 
does not immediately and necessarily rise or fall 
with the increased or diminished fertility of the 
land; but its increased fertility renders it capable 
of paying, at some future time, an augmented rent. 
Land possessed of very little fertility can never 
bear any rent ; land of moderate fertility may be 
made, as population increases, to bear a moderate 
rent ; and land of great fertility a high rent; but it is 
one thing ig be able to bear a high rent, and ano- 
ther thing actually to pay it. Rent may be lo.wer yj 
a country where lands are exceedingly fertile than 
in a country where they yield a moderate return, 
it being in proportion rather to relative than ab- 
solute fertility— rto the value of the produce, and 
not to its abundance. Mr. Malthus says, that the 
" cause of the excess of price of the necessaries of 
life above the cost of production, is to be found in 
their abundance rather than their scarcity, and is 
essentially diflferent from the high price of those 
peculiar products of the earth, not connected with 
food, which may be called natural and necessar^f 
monopolies." 

In what are they essentially different.'^ Would 
not the abundance of those peculiar products of 
the earth cause a rise of rent, if the demand for 
them at the same lime increased ? And can rept 
evt)r rise, whatever the commodity produced maj 
be, from abundance merely, and without an in- 
crease of demand ? 



4^7 

. The second cause of rent mentioned by Mr. 
Malthus, namely, " that quality |)eculiar to the ne- 
cessaries of life, of being able to create their own 
demand, or to raise up a number of demanders in 
proportion to the quantity of necessaries pro- 
jduced," does not appear to me to be any w«ay es- 
sential to it. It is not the abundance of necessa- 
ries which raises up demandefs, but the abundance 
of demanders which raises up necessaries. 

We are under no necessity of producing perma- 
nently any greater quantity of a commodity than 
that which is demanded. If, by accident, any 
greater quantity were produced, it would fall be- 
low its natural price, and, therefore, would not 
pay the-cpst of production, together with the usual 
and ordinary profits of stock : thus the supply 
would be checked till it conformed to the demand, 
and the market price rose to the natural price, 

Mr. Malthus appears to me to be too much in- 
clined to think that population is only increased 
by the previous provision of food, — " that it is food 
that creates its own demand," — that it is by first 
providing food that encouragement is given to 
marriage, instead of considering that the general 
progress of population is affected by the increase 
of capital, the consequent demand for labour, and 
the rise of wages; and that the production of food 
is but the effect of that demand. 

It is by giving the workman more money, or any 
other commodity in which wages are paid, &nd 
which has not fallen in value,, that his situation i? 



• 



423 



improved. The increase of population, and the 
increase of food will generally be the effect, but 
not the necessary effect of high wages The 
amended condition of the labourer, in consequence 
of the increased value which is paid him, does not 
necessarily oblige hira to ngarry and take upon 
himself the charge of a family — he may, if it please 
him, exchange his ihcreased wages for any com- 
modities that may contribute to his enjoyments— 
for chairs, tables, and hardware ; or for better 
clothes, sugar, and tobacco. His increased wages 
then will be attended with no other effect than an 
increased demand for some of those commodities; 
and as the race of labourers will not be materially 
increased, his wages will continue permanently 
high. But although this might be the consequence 
of high wages, yet so great are the the delights of 
domestic society, that in practice it is invariably 
found that an increase of population follows the 
amended condition of the labourer; and It is only 
because it does so, that a new and increased de- 
mand arises for food. This demand, then, is the 
effect of an increase of population, but not the 
cause — it is only because the expenditure of the 
people takes this direction, that the market price 
of necessaries exceeds the natural price, and that 
the quantity of food required is produced ; and it 
is because the number of people is increased, that 
wages again fall. 

What motive can a farmer have to produce more 
corn than is actually demanded, when the conse- 



42.9 

quence would be a depression of its market price 
below its natural price, and consequently a priva* 
tion to him of a portion of his profits, by reducing 
them below the general rate ? " If," says Mr. 
Maithus, " the necessaries of life, the most impor- 
tant products of land, had not the property of cre- 
ating an increase of demand proportioned to therr 
increased quantity, such increased quantity would 
occasion a fall in their exchangeable value.* How^ 
ever abundant might be the produce of a country, 
its population might remain stationary. And this 
abundance without a proportionate demand, and 
with a very high corn price of labour, which 
would naturally take place under these circum- 
stances, might reduce the price of raw produce, 
like the price of manufactures, to the cost of pro- 
duction." 

" Might reduce the price of raw produce to the 
cost of production .'"' Is it ever for any length of 
time either above or below this price ? Does not 
Mr, Maithus himself, state it never to be so ? '* I 
hope," he says, "to be excused for dwelling a 
little, and presenting to the reader in various 
forms the doctrine, that corn, in reference to the 
quantity actually produced, is sold at its necessary 
price like manufactures, because I consider it as a 
truth of the highest importance, which has been 

* Of what increased quantity does Mr. Maithus speak ? 
Who is to produce it? Who can have any motive to produce 
it, before any demand exists for an additional quantity ? 



430 



overlooked by tlie economists, by Adam Smith, 
and all those writers, who have rejDresented raw 
produce as selling always at a monopoly price." 

" Every extensive country may thus be consi- 
dered as possessing a gradation of machines for 
the pKoduction of corn and raw materials, includ- 
ing in this gradation not only all the various ijuali- 
ties of poor land, of which every territory has 
generally an abundance, but the inferior machinery 
which may be said to be employed when good 
land is further and further forced for additional 
produce. As the price of raw produce continues 
to rise, these inferior machines are successively 
called into action ; and as the price of raw pro- 
duce continues to fail, they are successively thrown 
out of action. The illustration here used serves 
to show at once the necessity of the actual price of 
corn to the actual produce^ and the different eflfect 
which would attend a great reduction in the price 
of any particular manufacture, and a great reduc- 
tion in the price of raw produce.' 



55* 



* IiKjuirj', &c. •'* In all, progressive countries, the average 
pt'ice of corn is never higher than what is necessary to con- 
tinue tlie average increase of produce.'' Observations, p. 21, 

" In the employment of fresh capital upon the land, to 
provide for the wants of an increasing population, whether 
(his fresh capital is employed in bringing more land under 
the plough, or improving land already in cultivation, the 
main question always depends upon the expecte(^ returns of 
thi's capital ; and no part of the gross profits can be dimin- 
ished, without diminishing the motive to this mode of em- 
ploying it. Every d^ninution of ptice, not fully and imme- 



131 

How are these passages to be reconciled to that 
wJiich affirms, that if the necessaries of hfe had not 
the property of creating an increase of demand 
proportioned to their increased quantity, the abun- 
dant quantity produced would then, and then only^ 
reduce the price of raw produce to the cost &f 
production ? If corn is never under its natural 
price, it is never more abundant than the actual 
population require it to be for their own consump- 
tion ; no store can be laid up for the consumption 
of others ; it can never, then, by its cheapness apd 
abundance be a stimulus to population. In pro- 
portion as corn can be produced cheaply, the in-: 
creased wages of the* labourers will have more 
power to maintain families. In America, popula- 
tion increases rapidly, because food can be pro- 
duced aj a cheap price, and' not because an abun- 
dant supply has been previously provided. In 
Europe, population increases comparatively slowly, 
because food cannot be produced at a cheap value. 
In the usual and ordinary course of things, the de- 
mand ibr all commodities precedes their supply. 

diately balanced by a proportioned fall in all the necessary 
expenses of a farm, every tax on the land, every tax on 
farming stock, every tax on the necessaries of farmers, will 
tell in the computation ; and if, after all these outgoings are 
atlowed for, the price of the produce will not leave a fair 
remuneration for the capital eniploj^ed, according to the 
general rate of profits, and a rent at least equal to the rent of 
the land iu its former state, no sufficient motive can exist to 
undertake the projected improvement." Observations, p. 22. 



432. 

By saying, that corn would, like manuractures^ 
sink to its price of production, if it could not raise 
up demanders, Mr. Malthus. cannot mean that all 
rent would be absorbed; for he has himself justly 
remarked, that if all rent were given up by the 
landlords, corn would not fall in price; rent being 
the effect, and not the cause of high price, and 
there being always one quality of land in cultiva- 
tion which pays no rent whatever, the corn from 
which replaces by its price, only wages and profits. 
In the following passage, Mr. Malthus has given 
an able exposition of the causes of the rise in the 
price of raw produce in rich and progressive coun- 
tries, in every word of which I concur; but it ap- 
pears to me to be at variance with some of the 
propositions maintained by him in some parts of 
his Essay on Rent. " I have no hesitation in sta- 
ting, that, independently of the irregularities in 
the currency of a country, and other temporary 
and accidental circumstances, the cause of the hi^h 
comparative money price of corn, is its high com- 
parative real price, or the greater quantity of capi- 
tal and labour which must be employed to produce 
it; and that the reasons why the real price of corn 
is higher, and continually rising in countries which 
are already rich, and still advancing in prosperity 
and population, is to be found in the necessity of 
resorting constantly to poorer land, to machines 
which require a greater expenditure to work them, 
and which consequently occasion each fresh addi- 
tion to the raw produce of the country to be pur- 



433 

chased at a greater cost; in short, it, is to be found 
in the important truth, that corn in a progressive 
countrj, is sold at the price necessary to yield the 
actual supply ; and that, as this supply becomes 
more and more difficult, the price rices in propor- 
tion." 

The real price of a commodity is here properly 
stated to depend on the greater or less quantity 
of labour and capital (that is, accumulated labour) 
Vwhich must be employed to produce it. Real price 
does not, as some have contended, depend on mo.- 
ney value ; nor, as o-thers have said, on value re- 
latively to corn, labour, or any other commodity 
taken singly, or to all commodities collectively > 
but, as Mr. Malthus justly says, " on the greater 
(or less) quantity of capital and labour which must 
be employed to produce it." 

Among the causes of the rise of rent, Mr. Mal- 
thus mentions, *' such an increase of population as 
will lower the w^ages of labour-" But if, as the 
wages of labour fall, the profits of stock rise, and 
they be together always of the same value,* no 
fall of wage9;:;i3an raise rent, for it will neither di- 
minish the portion, not the value of the portion 
of the produce which will be allotted to the 
farmer and labourer together, and therefore will 
not leave a larger portion, nor a larger value for 
the landlord. In proportion as less is appropriated 
for wages, more will be appropriated for profits, 
and vice verscti This division will be settled by the 

* Seep. 90. • 

55 



tl34 

farmer and \m laliourers, without any interference 
of the landlord ; and indee'd it is a matter in which 
he can have no interest, otherwise tlian as one di- 
vision may be more favourable than another, to 
new accumulations, and to a further demand for 
land. If wages fall, profits, and not rent, would 
rise. If wages rose, profits, and not rent, would 
fall. The rise of rent and wages, and the fall of 
profits, are generally the inevitable effects of the 
same cause — the increasing demand for food, the 
increased quantity of labour required to produce 
it, and its consequently high* price. If the land- 
lord were to forego his whole rent, the labourers 
would not be in the least benefited. If the la- 
bourers were to give up their whole wages, the 
landlords would derive no advantage from such a 
circumstance ; but in both cases the farmer would 
receive and retain all which they relinquished. It 
has been my endeavour to show in this work, that 
a fall of wages would have no other effect than to 
raise profits. 

Another cause of the rise of rent, according to 
Mr. Malthus, is "such agricultural improvements, 
or such increase of exertions, as will diminish the 
number of labourers necessary to produce a given 
effect." This would not raise the value of the 
whole produce and would therefore not increase 
rent. It would lather have a contrary tendency, 
it would lower rent ; for if in consequence of these 
improvements, the actual quantity offood required 
could be furnished either with fewer hands, or with 



435 

a less quantity of land, the price of raw produce 
would fall, and capital would be withdrawn from 
the land.* Nx)thing can raise rent, but a denriand 
for new land of an inferior quality, or some cause 
which shall occasion an alteration in the relative 
fertihty of the land already under cultivation.t Im- 
provements in agriculture, and in the division of 
labour, are common to all land ; they increase the 
absolute quantity of raw pi'oduce obtained from 
each, but probably do n'ot much disturb the rela- 
tive proportions which before existed between 
them. 

Mr. Malthus has justly commented on an error 
of Adam Smith, and says, "the substance of his 
(Dr. Smith's) argument is, that corn is of so pecu.- 
Jiar a nature, that its real price cannot be raised by 
an increase of its money price ; and that, as it is 
clearfy an increase of real price alone, which can 
encourage its production, the rise of money price, 
occasioned by a bounty, can have no such effect." 

He continues : "It is by no means intended to 
deny the powerful influence of the price of corn 
upon the price of labour, on an average of a con- 
siderable number of years j but that this influence 

* Seep. 51, &c. . . 

t It ia not necessary to state on every occasion, but it 
rtiust be always understood, that the same effect will be pro- 
duced by emploj'ing different, but equal portions of capital 
on the land already in cultivation, with different result?.. 
Rent is the difference of produce obtained with equal capi- 
tals, and with equal labour on the same, or on different qua- 
lities of land. 



436 

is not such as to prevent the movement of capital 
to, or from the land, which is the precise point in 
question, w\\\ be made sufficiently evident by a 
short inquiry into the manner in which labour is 
paid, and brought into the market, and by a con- 
sideration of the consequences to which the as- 
sumption of Adam Smith's proposition would in- 
evitably lead."* 

Mr.Malthus then proceeds to show, that demand 
and high price will as eflfectually encourage the 
production of raw produce, as the demand and 
high price of any other commodity will encourage 
its production. In this view it will be seen, from 
what I have said of the effects of bounties, that I 
entirely concur. I have noticed the passage from 
Mr. Malthus's " Observations on the Corn Laws," 
for the purpose of showing in what a different 
sense the term real price is used here, and in his 
other pamphlet, entitled "Grounds of an Opinion, 
&;c." In this passage Mr. Malthus tells us, that 
'* it is clearly an increase of real price alone which 
can encourage the production of corn," and by 
real price he evidently means the increase in its 
value relatively to all other things, or in other 
words, the rise in its market above its natural 
price, or the cost of its production. If by real 
price this is what is meant, Mr. Malthus's opinion 
is undoubtedly correct ; it is the rise in the market 
price of corn which alone encourages its produc- 

* Observations on the Corn Laws, p. 4. 



436 

tlon, for it may be laid down as a principle uni- 
formly true, that the only encouragement to the 
increased production of a commodity, is its market 
value exceeding its natural or necessary value. 

But this is not the meaning which Mr. Malthus, 
on other occasions, attaches to the term, real price. 
In the Essay on Rent, Mr. Malthos says, by " the 
real growing price of corn, 1 mean the real quantity 
of labour and capital which has been employed to 
produce the last additions which have been made 
to the national produce." In another part he 
states " the cause of the high comparative real 
price of corn to be the greater quantity of capital ' 
and labour, which must be employed to produce 
it."* Suppose that in the foregoing passage we 
were to substitute this definition of real price, 
would it not then run thus ? — " It is clearly the 
increase in the quantity of labour and capital 
which" must be employed to produce corn, which 
alone can encourage its production." This would 
be to say, that it is clearj'y the rise in the natural 
or necessary price of corn, which encourages its 
production—a proposition which could not be 

* Upon showing this passage to Mr. Malthus, at the time 
when these papers were going to the press, heobservedi'that 
in these two instances he had inadvertently used the term 
realprice, instead oicost of production.'^ It will be seenfrom 
what I have already said, that to me it appears, that in these 
two instances he has ijised the term real price in its true and 
just acceptation, and that In the former case only it is incor-- 
rectly fepplied. 



438 

maintained. It is not the price at which corn can 
be produced, that has any inl^uenceon the quantity 
produced, but the price at which it can be sold. 
It is in proportion to the degree of the excess of 
its price above the cost of production, that capital 
is attracted to or repelled from the land. If that 
excess be such as to give to capital so employed, a 
greater than the general profit of stock, capital 
will go to the land ; if less, it will be withdriiwn 
from it. 

It is not then by an alteration in the real price 
of corn that its production is encouraged, but by 
an alteration in its market price. It is not " be- 
cause a greater quantity of capital and labour 
must be employed to produce it," Mr. Malthus's 
definition of real price, that more capital and la- 
bour are attracted to the land, but because the 
market priee rises above this its real price, and, 
notwithstanding the increased charge, makes the 
cultivation of land the more profitable employment 
of capital. 

Nothing can be more just than the following 
observations of Mr. Malthus, on Aolam Smith's 
standard of value. " Adam Smith was evidently 
led into this train of argument, from his habit of 
considering labour as the standard measure of valuer 
and corn as the measure of labour. But that corrt 
is a very inaccurate measure of labour, the history 
of our own country will amply demonstrate; where 
labour, compared with corn, will be found to have 
experienced very great and striking variations, not 



439 

only from year to year, but from century to cen- 
tury; and for ten, twenty, and thirty years to- 
gether, ^nd that neither labour nor any other com- 
modity can be an accurate measure of real value in ex- 
change^ is now considered as one of the most in- 
controyertible doctrines of political economy; and, 
indeed, follows from the very definition of value in 
exchange." 

If neither corn nor labour are accurate measures 
of real value in exchange, which they clearly are 
not, what other commodity is ? — certainly none. 
If then the expression real price of commodities, 
have any meaning, it must be that which Mr. Mal- 
thus has stated in the Essay on Rent — it must be 
measured by the proportionate quantity of capital 
and labour necessary to produce them. 

In Mr. Malthus's "Inquiry into the Nature of 
Rent," he says, " that, independently of irregulari- 
ties in the'currency of a country, and other tem- 
porary and accidental circumstances, the cause of 
the high comparative money price of corn, is its 
high comparative real price, or the greater quantity 
of capital and labour which must be employed to pro- 
duce ity* 

This, I apprehend, is the correct account of all 
permanent variations in price, whether of corn or 
of any other commodity. A commodity can only 
permanently rise in price, either because a greater 
quantity of capital and labour must be employrd 

* Page 40. 



440 

to produce it, or because nionej lias fallen in 
value; and on the contrary, it can only fall in 
price, either because a less quantity of capital and 
labour may be employed to produce it, or because 
money has risen in value. 

A variation arisinsf from the latter of either of 
these alternatives, an altered value of money, is 
common at once to all commodities ; but a varia- 
tion, arising from the former cause, is confined 
to the particular commodity requiring more or 
less labour in its production. By allowing the free 
importation of corn, or by improvements in agri- 
culture, raw produce would fall; but the price of 
no other commodity would be affected, except in 
proportion to the fall in the real value, or cost of 
production, of the raw produce which entered into 
its composition. 

Mr. Malthus having acknowledged this princi- 
ple, cannot, I think, consistently maintain that the 
whole money value of all the commodities in the 
country must sink exactly in proportion to the fall 
in the price of corn. If the corn consumed in the 
country were of the value of ten millions per an- 
num, and the manufactured and foreign commodi- 
ties consumed were of the value of twenty millions, 
making altogether thirty millions, it would not be 
admissible toinfer that the annual expenditure was 
reduced to 15 millions, because corn had fallen 50 
per cent., or from 10 to 5 millions. 

The value of the raw produce which entered 
into the composition of these manufactures might 



441 

not, for example, exceed 20 per cent; of their whole 
value, and, therefore, the fall in the value of manu- 
factured commodities, instead of being from 20 to 
]0 millions, would be only from 20 to 18 millions; 
and after the fall in the price of corn of 50 per 
cent., the whole amount of the annual expenditure, 
instead of falling from 30 to 25 millions, would 
fall from 30 to 23 millions.* 

Instead of thus considering the effect of a fall in 
the value of ravY produce ; as Mr. Malthus was 
bound to do by his previous admission ; he consi- 
ders it as precisely the same thing with a rise qf 
100 per cent, in the value of money, and, there- 
fore, arg;ues as if all commodities would sink to 
half their former price, 

*' During the twenty years, beginning with 1 794," 
he says, " and ending with 1813, the average price 
of British corn per quarter was about eighty-three 
shillings; during the ten years ending with 1813, 
ninety-two shillings ; and during the last five years 
of the twenty, one hundred and eight shillings. In 
the course of these twenty years, the government 
borrowed near five hundred millions of real capi- 
tal ; for which, on a rough average, exclusive of 
the sinking fund, it engaged to pay about five per 

* Manufactures, indeed, could not fall in any such propor- 
*iou because under the circumstances supposed there would 
be a new distribution of the precious metals among the dif- 
ferent countries. Our cheap commodities would be exported 
in exchange for corn and gold, till the accumulation of gold 
should lower its Tt^ue, and raise the money price of commo' 
dities. 

5| 



442 

cent. But if Corn should fail to fifty shillings a 
quarter, and other commodities in proportion, in- 
stead of an interest of about five per cent., the 
government would really pay an interest of seven, 
eight, nine, and, for the last two hundred millions, 
ten per cent. 

*''To this extraordinary generosity towards the 
stockholders, I should be disposed to make no 
kind of objection, if it were not necessary to con- 
sider by whom it is to be paid ; and a moment's re- 
flection will show us, that it can only be paid by 
the industrious clasises of society, and the landlords, 
that is, by all those whose nominal income will vary 
with the variations in the measure of value. The no- 
minal revenues of this part of the society, compared 
with the average of the last five years, will be di- 
minished one half, and out of this nominally re- 
duced income, they will have to pay the same 
nominal amount of taxes."* 

In the first place, I think, I have already shown, 
that the nominal income of the whole country will 
not be diminished in the proportion for which Mr. 
Malthus here contends ; it would not follow, that 
because corn fell fifty per cent., each man's in- 
come would be reduced fifty per cent, in value.f 

In the secontl place, I think the reader will agree 
with me, that the increased charge, if admitted, 
would not fall exclusively *' on the landlords and 

;^ The Grounds of an Opinion, &c. page 36. 
t Mr. IMaltlius, in another part oi lUa £:ime work, supposes 
comniudities to vary 25 or 20 per cent, when com varies 
3.') 1-3. 



443 

industrious class of society :" the stockholder, by 
his expenditure, contributes his share to the sup- 
port of the public burdens in the same way as the 
other classes of society. If, then, money became 
really more valuable, although he would receive a 
greater value^ he would also pay a greater value 
in taxes, and, therefore, it cannot be true that the 
whole addition to the real value of the interest 
would be paid by " the landlords and the indus- 
trious classes." 

The whole argument, however, of Mr. Malthus, 
is built on an infirm basis: it supposes, because 
the gross income of the country is diminished, 
that, therefore, the net income must also be dh- 
minished in the same proportion. It has been one 
of the objects of this work to show, that with every 
fall in the real value of necessaries, the wages of 
labour would fall, and that the profits of stock 
would rise — in other words, that of any given an- 
nual value a less portion would be paid to the la- 
bouring class, and a larger portion to those whose 
funds employed this class. Suppose the value of 
the commodities produced in a particular manu- 
facture to be 1000/., and to be divided between 
the master and his labourers, in the proportion of 
800/. to labourers, and 200/. to the master; if the 
value of these commodities should fall to 900/., 
and 100/. be saved from the wages of labour, in 
consequence of the fall of necessaries, the net lUf 
come of the masters wpuld be in no degree im- 
paired, and, therefore, he could with just as ipuch 



444 

facility pay the same amount of taxes, after, as 
, before the reduction of fwice.* 

And that wages would fall as much as the mass 
of commodities, or rather that the net income re- 
maining to landlords, farmers, manufacturers, tra- 
ders, and stockholders, the only real payers of 
taxes, would be as great as before, is very highly 
probable; for nothing would be even nominally 
lost to the society by the freest importation of corn, 
but that portion of rent of which the landlords 
would be deprived in consequence of the fall of 
raw produce. 

The diflference between the value of corn and 
all other commodities sold in the country, before 
and after the importation of cheap cOrn, would be 
only equal to the fall of rent ; because, indepen- 
dently of rent, the same quantity of labour would 
always produce the same value. 

The whole reduction which is made in wages, is 
a value actually added to the value of the net in- 
come before possessed by the society ; whilst the 
only value which is taken from that net income is 
the value of that part of their rent of which the 
landlords will be deprived by a fall of raw produce. 
When we consider that the fall of produce acts 
upon a limited number of landlords, while it re- 
duces the wages not only of those who are em- 
employed in agriculture, but of all those who are 
occupied in manufactures and commerce, it may 

* In Chap. 24, 1 have observed, that the real resources of 
a country, and its ability to pay faxes, depend on its net, and 
not on its gross ipcouie. 



415 

well be doubted, whether the net revenue of the 
society woulcl suffer any abatement whatever.* 

But, if it did, it must not be supposed that the 
ability to pay taxes will diminish in the same de- 
gree, as the money value, even of the net revenue. 
Suppose that my net revenue were diminished 
from 1000/. to 900/.; but that my taxes continiied 
to be the same, to be 100/. : is it not probable that 
my ability to pay this 100/. may be greater with 
the smaller than with the larger revenue ? Com- 
gQodities cannot fall so universally as Mr. Mai thus 
supposes, without greatly benefiting the consumers, 
without enabling them with a much smaller money 
revenue to command more of the conveniences, 
necessaries, and luxuries of human life; and the 
question resalves itself into this — whether those 
who are in possession of the net revenue of the 
country will be benefited as much by the diminished 
price of commodities, as they will suffer by the 
greater real taxation. On which side the balance 
may preponderate, will depend on the proportion 
which taxes bear to the annual revenue ; if it be 
enormously large, it may undoubtedly more than 
counterbalance the advantages from cheap neces- 
saries; but 1 trust enough has been said, to show, 
that Mr. Maithus has very greatly over-rated the 
loss to the tax-payers, from a fall in one of the 

* This is on the suppostion that money continued at the 
same value. In the last note, I have endeavoured to show 
that money would not continue of the same value, — that it 
would fall, from increased importation; a fact which is much 
more favourable to my argument. 



most important necessaries of life j and that if they 
were notcntirely remunerated for the real increase 
of tax^s, by the fall of wages and increase of pro- 
fits, they would be more than compensated, by the 
cheaper price of all objects on which their incomes 
were expended. 

That the stockholder is benefited by a great fall 
in the value of corn, cannot be doubted ; but if no 
one else be injured, that is no reason why corn 
should be made dear: for the gains of the stock- 
holder are national gains; and increase, as allothef 
gains do, the real wealth and power of the coun- 
try. If they are unjustly benefited, let the degree 
in which they are so, be accurately ascertained, 
and then it is for the leg^islature to devise a reme- 
dy ; but no policy can be more unwise than to shut 
ourselves out from the great advantages arising 
from cheap command abundant productions, merely 
because the stockholder may have an undue pro- 
portion of the increase. 

To regulate the dividends on stock by the money 
value of corn, has never yet been attempted. If 
justice' and good faith required such a regulation, a 
great debt is due to the old stockholders ; for they 
have been receiving the same money dividends for 
more than a century, although corn has, perhaps, 
been doubled or trebled in price.* 

* Mr. M'Culloch, in an able publication bas very strongly 
contended for the justice of making the dividends on the na- 
tional debt conform to the reduced value of corn. He is in 
favour of a free trade in corn, but he thinks it should be ac- 
companied by a reduction of interest to the national creditor. 



447 

Mr Malthiis says, " It is true, that the last ad- 
ditions to the agricultural produce of an improving 
country are not attended with a large proportion 
of rent; and it is precisely this circumstance that 
may make it answer to a rich country to import 
some of its corn, if it can be secure of obtaining an 
equable supply. But in all cases the importation 
of foreign corn must fail to answer nationally, if it 
is not so much cheaper than the corn that can be 
grown at home, as to equal both the profits and 
the rent of the grain which it displaces." Grounds^ 
&c. p. 36. 

As rent is the effect of the high price of corn, the 
loss of rent is the effect of a low price. Foreign 
corn never enters into competition with such home 
corn as affords a rent; the fall of price invariably ai- 
fects the landlord till the whole of his rent is absorb- 
ed ; if it fall still more, the price will not afford even 
the common profits of stock ; capital will then quit 
the land for some other employment, and the corn, 
which was before grown upon it, will then, and not 
till then, be imported. From the loss of rent^ there 
will be a loss of value, of estimated money value.- 
but there.will be a gain of wealth. The amount 
of the raw produce and other productions together 
will be increased, from* the great facility with 
which they are produced ; they will, though aug- 
mented in quantity, be diminished in value. 

Two men employ equal capitals — one in agri- 
culture, the other in manufactures. That in agri- 
culture produces a net annual value of 1200/. of 
which 1000/. is retained for profit, and 200/. is paid 



448 

for rent J tife other in maftufactures produces only 
an annual value of 1000/, Suppose that by impor- 
tation, the same quantity of corn can be obtained 
for commodities which cost 950/., and that, in cob- 
sequence, the capital employed in agriculture is 
diverted to manufactures, where it can produce a 
value of 1000/. the net revenue of the country will 
be of less value, it will be reduced from 2200/. to 
2000/., but there will not only be the same quan- 
tity of -commodities and corn for its own consump- 
tion, but also as much addition to that quantity as 
50/. would purchase, the difference between the 
value at which its manufactures were sold to the 
foreign country, and the value of the corn which 
was purchased from it. 

Mr. Malthus says, "It has been justly observed 
by Adam Smith, that no equal quantity of produc- 
tive labour employed in manufactures can ever oc- 
casion so great a reproduction as in agriculture." 
If Adam Smith speaks of value, he is correct, but 
if he speaks of riches, which is the important point, 
he is mistaken, for he has himself defined riches 
to consist of the necessaries, conveniences, and en- 
joyments of human life. One set of necessaries and 
conveniences admits of no comparison with another 
set ; value in use cannot be measured by any 
kno\^n standard, it is differently estimated by dif- 
ferent persons. 

THK END. 



INDEX. 

Accumulation of capital, effects ot, on the relative value of commodities} 
15, 30. And on profits and interest, 299-312. 

Agriculture, effects of improvements in, on rents, 5Q-5S> Is affected by 
the distress proceeding from sudden revulsions of trade, 275-278. 
Agricultural improvements, no cause of the increase of rent, 434, 435. 

BarJcs, establishment of, affects the sole power of the state in coining 
money, 381. Consequence of the Bank of England issuing too great 
a quantity of paper, 382-334. The assistance given by the bank of 
England to commerce accounted forj 389, 390. See Paper Currencyi 

bounties, on the exportation of corn, lower its price to the foreign con- 
sumer, 313-320. Dffects of a bounty in raising the price of corn, 
illustraiedj 321. Though such bounty may cause a partial degra- 
dation in the value of money, yet such degradation cannot be per- 
manent, 324, 325. Bounties on the exportation of manufactures 
raise their market but not their natural price, 329, 330. The sole 
effect of bounty is to direct a portion -of capital to an employment 
which it would not naturally seek, 329. Evils of such a systemj 
330-334. A bounty on the production of corn will produce no real 
effect on the annual produce of the land and labour of the country, 
though it would make corn relatively cheap, and manufactures rela- 
tively dear, 339-344. But the effects of a tax on corn in order to afford 
a fund for a bounty on the production of commodities, would be to 
enhance the price of corn, and render commodities cheap, 345. 

Buchanan, (Mr.) observations of, on Adam Smith's doctrine of pro- 
ductive and unproductive labour, 46, 47, (note.) Remarks on his 
opinions respecting bounties, 331, 332. 

Capital, nature of, effects of the accumulation of, on the Relative value 
of commodities investigated, 15. Effects of, in a savage or infant 
state of society, IG'-IS, 20, 21. And in a more advanced state of 
society, 19, 20. The relative values of circulating and Jixed capi* 
tals considered, 20, 21. The distinction between circulating and 
fixed capitals difficult to be strictly defined, 135, 136. Considera- 
tions on the different modes of employing it, 62-65» The increase 
of capital in quantity and value, productive of a rise in the natural 
price of wages, 69,70. Increase of capital in quantity only, pro- 
ductive of a rise in the market price of wages, 69, 70. Effects of 
fhe accumulation of capital on profits and interest, 291-312. The 
sole effect of bounties on exportation, upon capital, is to divert a 
portion of it to an employment which it would not naturally seek. 
Remarks on such effects, 329. The profits, made by the employ- 
WPnt of capital, regulate the rate of irttereSt for mouej, 388, S39i 



INDEX. 

tJarrying Trade, observations on, 30G. 

Circulation of money, can never overflovo-, and why, 379, S80. Circo*- 
lation of paper. See Paper Currency. 

Colonial Trade, observations on, S61, 362. Proofs that trade with a 
colony may be so regulated as to be less beneficial to the colony, 
and more beneficial to the mother country, than a perfectly free 
trade, 362-368. Benefits of a colonial trade, 369-371. 

Commodilies, gold and silver an insufficient medium for determining the 
varying value of, 5, 6. Corn, an adequate standard of the value 
of, 8, 11. The effects of an accumulation of capital on the relative 
value of commodities, considered, 12, 34. Effects of a rise in 
wages on their value, 30-32 ; and of the payment of rent, 32, 33. 
Their exchangeable value regulated by the greater quantity of 
labour bestowed on their production by those who labour under the 
most unfavourable circumstances, 42, 43. The price of commodi- 
ties not necessarily increased by a rise in the price of labour, 80, 81. 
The cost of production regulates the price of commodities, 412, 

414, 421, 422. 

Corn, a variable standard for determining the varying value of thing?., 
7^JT. Effects of the price of, on rent, 48-52. Corn-rents materiallj'^ 
affected by tithes, 166-169. Advantage resulting from the relatively 
low price of corn, S'^O. Bounties on the exportation of it, lower its 
price to the foreign consumer, 313, 321. Effects of a bounty in 
raisiu;; the price of corn, 321. A bounty on the production of, pro- 
ductive of no real effect on the annual produce of the land' and 
labour of the country, 339-345. The price of corn enhanced by a 
tax on it, in order to afford a fund for a bounty on the production 
of commodities, 344, 345. Benefit of a high price of corn to land- 
lords, S5d. Investigation of the comparative value of corn, goldj 
and labour, in rich and in poor countries, 401-408. The produc- 
tion of corn encouraged by alteration in its market price, 438. A 
fall in the value of corn beneficial to the stockholder, 446. 

Cultivation, not discouraged by a tax on land and its produce, 175. 

Currency. See Gold and Silver. Paper Currency. 

Demand and Supply, influence of^ on prices, considered, 413. Opinion 
of M. Say, on this subject, 414, And of the earl of Lauderdal^. 

415, 416. Observations thereon, 417. 

Economy in labour, reduces the relative value of commodities, IS. Illus- 
tration of this principle, 16, 34. 

Exchange, no criterion of the increased value of moncj^, 13*^. To be 
ascertained by estimating the value of the currency in the currency 
of another country, 131, 134, and also by comparing it with some 
standard common to both Countries, 134. Effects of paper currency 
on exchange, 231-233. 



INDEX. 

Exportation of corn, bounties on, lower its price to the foreign consuaie^, 
313-321. Effects of, in raising the price of corn, illustrated, 321. 
Bounties on the exportation of manufactures raise the market, but 
not the natural, price of these, 327-329. 

Farmers pay more poor-rate than the manufacturers, 268-271. 

Foreign IVade, etfects of an extension of, 107, 108. Proofs that the 
profits, of the favoured trade will speedily subside to the general 
level, 108-113. 

Funded Property, the price of, no steady criterion by which to judge of 
the rate of interest, 310-312, 

C^old and Silxcr, an insufficient medium for determining the variable 
value of commodities, 5, 6. But upon the whole,' the least incon- 
%'cnient standard for money, 59, 60. On whom a tax upon gold 
would ultimately fall, 184, 1 85. The value of gold ultimately re- 
gulated by the comparative facility or- difficulty of producing it, 
186. Effects of a tax upon gold, 186, 193. Evils of prohibiting a 
free trade in the precious metals, when the prices of commodities 
are raised, 230. The value of gold and silver proportioned to the 
quantity of labour necessary to produce them and bring them to 
market, 379. Remarks on the employment of these metals iu cur- 
rency, 391, 392. Tlieir relative values at different periods, acr 
counted for, 891-399. Investigation of the comparative value of 
gold, corn, and labour, in rich and in poor countries, 401, 402. 

Gross Revenue, advantages of, over-rated by Adam Smith, 373. An.d 
by M. Say, 373, (note.) Examinalion of this doctrine, 374-378. A 
diminution of gross income, no diminution of net income, 441-444. 

Holland, low rate of interest in, accounted for, 300, (note.) 

Houses, rents of, distinguished into two parts, 195. Difference between 
rents of houses, and that of land, 196. Taxes on houses, by whom 
ultimately borne, 197. 

Importation of corn, effects of a prohibition of, considered, 328, 329. 

Interest, low rate of, in Holland, accounted for, 300, (note.) Effects of 
accumulation on profits and interest, 299, 312. Observations on the 
rates of interesj, 309, 312. The interest' for money is regulated by 
the rate of profits which can be made by the employment of capi- 
tal, 388, 391. 

Labour, the quantity of, requisite to obtain commodities, the principle 
source of their exchangeable value, 3, 4. Effects of machinery on, 
considered, 7, 8. Economy in labour reduces the relative value oX 
a coir.modity, 15. Illustrations of this principle, 15, 34. Adam 
Smith's theory of productive and unproductive labour considered, 
46, 47, notes. Natural price of, explained, 67, 63. Market prico 
of, what, 68. Its influence on the happiness of the labourer, 63. 
Investigation of the comparative value of la*)our. qold, and corn, in 
rich ajid poor countries, 401, 402. 



INDEX. 



Ldnd, tlie division of the whole produce of, between landlords, capital- 
ists, and labourers, is the criterion of rent, profits, and wages, 31, 
34. Its different productive qualities, a c^use of rent, 39, 42. Efi- 
fects of increasing its productive powers by agricultural improve- 
meuts, 51, 52. 

Landl-ords, tithes injurious to 168, 169. Benefit of a higji price of corn 
to them, 359. 

ZjOnd Tax, virtually a tax on rent, 171. Effects of an equal land tax, 
imposed indiscriminately, on all land cultivated, 172, 173. Error 
of Dr. Adam Smith, on the inequality of land and all other taxes, 
accounted for, 173, 175. Tax on land and its produce, no bar to 
cultivation, 175, 176. Operation of the land tax of Great Britain, 
considered, 176, 177. Mistake of M. Say, corrected, 178, 131. 

Lauderdale, (earl of,) opinion of, on the influence of demand and supply 
of prices, 415, 417. Remarks thereon, 417. 

Luxuries, observations on the taxing of, 417, Advantages and disad- 
vantages of taxing them, considered, ^33, 234. 

Machinery, effects of, in fixing the relative values of commodities, 24, 29. 

Malthm, (Mr.) examination of the opinions of, on rent, 419, 448. The 
real cost of production regulates the price of commodities, 433, 
436. Increase of population no cause of the rise of rent, 433, 434, 
nor agricultural improvement, 434, 435. His supposition, that nett 
income is diminished, in proportion to a diminution of gross income, 
disputed, 441, 444. Loss of rent, the effect of a low price of corn, 
447, 448. 

Manufactures, improvement of, in any conntry, tends to alter the dis- 
tribution of the precious metals among the nations of the world, 
1 14, 124. JVIanufacturers pay less poor rate than farmers, 263, 271. 
The market price of manufactures,- but not their natural price., 
raised by bounties on their exportation, 327, 329. 

Mines, distinguished by their fertility or barrenness, 58. Effect of dis- 
covering the rich mines of America on the price of the precious 
metals, 58, Observations on the rent of mines, 350, 353. 

Mpnej/, effects of the rise of, in value, on the price of commodities, 30, 
31. The rate of profit not effected by variations in the value of 
money, 33, 34. Different value of nioney in different countries, 
accounted for, 124,126. The value of money, generally diminished 
by improvements in the facility of working the mines of the precious 
metals, 129. The demand for, regulated by its value, and its value 
by its quantity, 158, 159. Low value of, in Spain, prejudicial to 
the commerce and manufactures of that country, 228, 229. Obser» 
vations on the rates of interest for money, 309, 812, 333, 389. The 
value of, though partially degraded by a bounty on gorn, yet not 
permanently degraded, 324, 325. The quantity of, employed in a 
country, dependent upon its value, 379. Effects of the state charg- 
, ing a geignorage on coining money, 380, 399. 



^ 



INDEX. 

Monopoh/ price, observations on, 255, 258. 

J^ational debt, observations on, 247, 263. 

J^elt Revenue, advantages of, unduly estimated by Adam Smith, 3?.^, 
and by M. Say, 373, (note.) Examination of their doctrines, 374, 
378. Is not diminished by a proportionate diminution of gross re* 
venue, 441, 444. 

Paper Currency, circulation of, explained, 380, 381. Paper money, not 
necessarily payable in specie, to secure its value, 381. But the 
quantity issued must be regulated according to the value of the 
standard metal, 382. The Bank of England, why liable to be 
drained of specie for its paper currency, 382, 384. Compelling the 
issuers of paper money to pay their notes either in gold coin or 
bullion, is the only control upon their abusing their power of issu- 
ing such money, 384. Provided there were perfect security agains^ 
such abuse, it is immaterial by whom paper is issued, 386. Illus- 
tration of this point, 386-391. 

Poor Laws, pernicious tendency of, as they now exist, 82. Remedies 
for, 83, 84. 

Poor Rates, nature of, 266. How levied, 26. More fall on the farmer 
than on the manufacturer, in proportion to their respective profits, 
268, 271. 

Papulation, increase of, no cause of the rise of rent, 433, 434. 

Price, (real,) of things, distinguished, 3. Natural and market prices 
distinguished, and how governed, 61, 65. The prices of commodi^ 
ties, not necessarily raised by a rise in the price of labour, 80, 81. 
Rise of price on raw produce, the only means by which the culti- 
vator can pay the tax imposed thereon, 142. The market, but not 
the natural, price of nianufactures, raised by bounties on their ex- 
portation, 327,. 328. The influence of demand and supply of prices 
considered, 413, 417, 432, 433, 436, 437. Alteration in the market 
price of corn encourages its production, 438, 439, 

Produce of Land, and labour of the country, must be divided between 
capitalists, landlords, and labourers, to afibrd a criterion of rent, 
profits, and wages, 31, 34, Effects of taxes on raw produce, 141, 
Tax on raw produce raises the p^ice of wages, 144. Objections 
against taxing the produce of land, considered, 146, 163j Remarks 
on the inconveniences supposed to result from the payment of taxes 
by the producer, 409, 411. 

Production, difficulty of, benefits the landlord, 57. The cost of produc- 
tion, the regulator ofthe price of commodities, 413, 432, 433,436,437, 

Profits of stock, difficult to ascertain, 309. The quantity of labour ne- 
cessary to obtain the produce of land, is the criterion by which to 
estimate rate ofprofit, wages, and rent, 31, 34. A rise in the price 
of corn, productive of a diminution in the money-value of the 
firmer's profits, 86, 91. A rise in the price of raw produce, if ac» 



INDEX. 

companied by a rise of wages, lowers the agricultural and maau- 
fiicturing profits, 91, 92. Proofs, that profits depend on the quantitj- 
of labour requisite to provide necessaries for labourers, on that 
land, or with that capital which j^ields no rent, 95, 106. Effects of 
an extension of foreign trade on profits, 107. Proofs, that the profits 
of the favoured trade will spcedilj' subside to the general level, 109, 
113. And so with respect to home trade, 113, 115. Further proofs 
that profits depend on real wages, 126, 127. Tax on necessaries 
virtually a tax on profits, 201, 202. Effects of a taxation of profits 
considered, 201, 211. The profits of stock diminished by a tax oa 
wages, 213. Efiects of accumulation on profits and interest, 299, 312 
Prohibition of importation of corn, effects of, considered, 228, 229. 
Provisions, causes of the high price of, 147, 148. First, a deficient sup- 
ply, 148. Secondly, a gradually increasing demand, ultimately 
attended with an increased cost of production, 148, 149. Thirdly, 
a fall in the value of money, 151, 152. Fourthly, a tax on necessa- 
ries, 152, 153. 
Raits, nature of, 35, 36, 37, 270, 271, (note.) Adam Sniilli's doctrine of 
rent, considered, 36, 37. The different productive qualities of land 
and increase of pojiulaiion, the cause of rents, 39, 42. Rise of, the 
effect of the increasing v/ealth of the countrj-, 47, 48. Influence of 
the prices of corn on rent, 47, 52. Effects of agricultural improve- 
ments on rent, 52, 55» Observations on the rent of mines, 57, 60. 
Tax on rent falls wholly on the landlords, 161, 163. Corn rents 
materially efl'cctedby tithes, 166. Examination of Dr. Adam Sinith's 
doctrine concerning the rent of land, 347, 359. And of Mr. Mal- 
thus's opinions on rent, 419, 433. Increase of population is no cause 
of the rise of rent, 433, 434. Neither are agricultural improve- 
ments, 434, 435. Loss of rent, tho effect of a low price of corn. 
447, 448. 
JticheSy defined, 283. Difference between riches and value, 233, 289. 
Means of increasing the riches of a country, 290, 291. Erroneous 
views of M. Say, on this subject considered, 291, 297. 
Sai/, (M.) erroneous views of, conconing the principles of the land lax 
in Great Britain, corrected, 177, 181. Examination of some of his 
principles of taxation, 237, 245, 248, 249, (note.) Remarks on his 
niistalien view of value and riches, 292, 297. Examination of his 
doctrine concerning bounties on exportation, 333, 337. And on gross 
and nett revenue, 371, 378. Danger resulting from his recommen- 
dation respecting the charging of seignorage for coining money, 393, 
399, (notes.) Observations on his statement of llie inconveniences 
resulting from payment of taxes by tiie producer, 409, 411. His 
opinion on the influence of demand and supply on prices coiisid- 
ercd, 414, 415. 
Scnrcifi/, a source ef {{schangcable valu^e, 2. 



INDEX. 

Scignorage^ eflbcts of, on the value of money, 380, 398) 399. 

Simonde^ (M.) remarks on the opinion of, concerning the circumstaBces 
resulting from the payment of taxes by the producer, 410,411* 

Silver, see Gold and Silver. 

Sinking Fund, in England, merely nominal, how contlucted, 254, 255, 370d 

Smith, (Dr. Adam,) on the meaning of the term value, 1. His doctrine 
that corn is a proper medium for fixing the varying value of other 
tilings, examined; 6, 8. Strictures on his doctrine relative to labour 
being the sole ultimate standard of the exchangeable value of com- 
modities, 8, 10, 433, 439. And on his definitions of rent, 35, 36. 
His theory of productive and unproductive labour considered, 46, 
48, (notes.) Correction of the erroneous view of the inequality of 
taxes on land, and all other taxes, 173, 176. His opinion on the 
taxes upon labour, 213, 214. Examination thereofj by Mr. Bu- 
cha'nan, 214, 220. Observations thereon, by the author of this work, 
218, 233. Correction of his mistaken view of taxes upon luxuries, 
234, 239. Tlemarks on his doctrine concerning bounties on expor- 
tation, 315, 317, 330. Examination of his doctrine concerning the 
rent of land, 347, 360. And on gross and nett revenue, 373, 378. 
Strictures on his principles of paper currenc)', 382, 386. His state- 
ment respecting the advantages of the Scottish mode of affording 
accommodation to trade, disnpproved, 391, 392, 396. Remarks on 
his doctrine, relative to the comparative value of gold^ corn, and 
labour, in rich and in poor countries, 402, 408. 

Spam, commerce and manufactures of, injured by the low value of 
money there, 228. 

Htamp Duty^ weight of, a bar to the transfer of landed property, 198, 199. 

Taxes, nature of explained, 135. Impolicy of taxes on capital, 137, 
133. Taxes upon the transfer of property, 138. On whom the 
several kinds of taxes principally fall, 139, 140. Effect of taxes on 
raw produce, 141. A rise of price in ravv produce the onlj' mearts' 
by which the cultivator can pay the tax, 141, 142. Such tax in fact 
paid by the consumer, 142, 144. _ Tax on raw produce, and in the 
necessaries of the labourer, raises the price of wages, 144, 145. 
Objections against the taxation of the produce of land, considered, 
and refuted, 146, 163. Tithes, an equal tax, 165. Difference be- 
tween them and a tax on I'avv produce, 165, 166. Objections to 
them, 167, 169. Tax on land, virtually a tax on rent, 171. They 
ought to be clear and certain, 172, 173. Effect of taxes on gold,, 
considered, 183, 193. Ground rents, not a fair subject of taxation,, 
197, 198. Taxes on houses, by whom ultimately borne, 197, 198. 
Taxes on necessaries, virtually a tax on profits, 201, 202. Effects 
of taxation of profits considered, 201, 211. Taxes upon luxuries, 
283. Advantages and disadvantages of, 243, 245. Supposed ab- 
surdities in ta:xation, explained and ohviatrj-d, SIM. 235.. Proper 



INDEX. 

objects of taxation, 242. Observations on the taxation of otbst 
^mmodities than raw produce, 247. Effects of taxes to defray the 
interest of loans, 248, 249. Remarks on the tax upon malt, and 
every other tax on raw produce, 258, 263. Nature and operation 
of the poor rate, 266, 271. Examination of the inconveniences sup- 
posed to be sustained by the payment of taxes by the producer, 
409, 411. 

Tithes, nature of, 165. Are an equal tax, 165. Difference between 
tithes and a tax on raw produce, 165. Tithes materially affect 
corn rents, 166. They act as a bounty on importation, and there- 
fore are injurious to landlords, 168. Do not discourage cuUivation, 
168, 169. 

TVadc, general causes of sudden changes in the channels of, 2?3, 275.- 
More particularly, the commencement of war, after a long peace, 
or vice versa, 275, 278. The effects of such revulsions on agricul- 
ture, considered, 277, 282. Observations on the carrying trade^ 
306. See Foreign Trade. 

tJtility, essential to exchangeable value, 1. 

P^alue, difinition of, 1. The distinctive properties of value and riches 
considered, 283, 297. See Labour. Utility essential to exchangeable 
value, 1. Scarcity, one source of such value, 2. The quantity of 
labour required to obtain commodities, the principle source of ex- 
changeable value, 2, 14. The effects of accumulation of capital on 
relative value, 16, 34. Effects of a rise on wages, or relative value, 
35, 36. Effects of payment of rent, on value, 35, 36. Variations 
in the value of money make no difference in the rate of profits, 33, 
34. The value of gold and silver is in proportion to the labour ne- 
cessary to produce and bring them to market, 379, 380. Investiga- 
tion of the comparative value of gold, corn, and labour, in rich 
and in poor countries, 401, 408. 

Wages, effects of a rise in, on relative value, 19, 34. Natural and 
market prices of labour, 67, 69. Increase of capital in quantity 
and value, increases the natural price of wages, 67, 70. Increase of 
capital, but not in value, augments the market price of wages, 70. 
Proofs that the increasing difficulty of providing an additional quan- 
tity of food with the same proportional quantity of labour, will 
raise wages, 72, 77. A rise in wages not necessarily productive of 
comfort to the labourer, 77, 79. A rise of wages not necessarily 
productive of a rise in the prices of commodities, 79, 81, 213, 216. 
Wages will be raised by a tax on necessaries, 201, 202. And by a 
tax on wages, 213. Effects of a tax uppn wages, considered, 221, 228. 

Wealth, causes of the increase of, 47. 



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